The economy has ground to a halt, for now, and there is plenty of debate on when and how the recovery will come, but one thing is certain: there will be change. Many of the changes will likely involve the way we work and communicate – the ‘social distancing’ policies in place have forced many white-collar workers to move their workspace from the office to the home, and increased the demands on the nation’s networking infrastructure and internet access plans.
Lower costs and latency will be in high demand, even as the workforce hopfully returns to normal in 2H20. It’s likely that many companies will opt to keep at least some of their employees working by remote, and it is also likely that schools and universities will continue making use of remote learning. Even without that, however, the home quarantines have pushed a large part of the population to start using multiple devices simultaneously in the home – and they are likely to continue that habit.
Those are changes which, ironically, may be coming at just the right time. 5G digital technology, the next generation in digital and wireless connectivity, will more deeply ingrain these new changes, by making the networks more effective.
In his white paper on the coming 5G switchover, 5-star analyst Timothy Horan, of Oppenheimer, puts the bottom line right at the top: “5G will increase wireless capacity 10x and reduce latency by 1/10th, while lowering operating expenses.” Horan sees wifi as the wave of the future, as it has the capacity to meet a wide variety of needs in a single digital network. He writes, “Consumers require only mobile broadband, with all applications over the top (OTT). We expect fixed wireless households to grow from 6 million to 23 million.”
Specifically, Horan believes that the emergence of 5G will push a merging of wireless and cable-based infrastructures, a mixing of the cloud and traditional software system that he calls ‘Fog.’ In Horan’s words, “We are seeing convergence between wireless and wireline and cloud and communication networks, and this will create a new edge-based Fog infrastructure. This will in turn drive lower costs and lower latency…”
For investors, this means that there will be stock opportunities as 5G comes online and fully develops its market potential. Companies will have to build the towers, expand the infrastructure, design and market 5G modems and other hardware. And every item on that list is another chance for investors to spot a company making profits in 5G.
We’ve used TipRanks’ database to find three stocks positioned to gain in the 5G world — at least according to Wall Street’s top-rated analysts. Two are on the cusp of takeoff; one is already off the ground.
Telefonakiebolaget LM Ericsson (ERIC)
You know about Ericsson. The Swedish company is one of the storied names in the telecom world, especially in the area of mobile technology. Ericsson is also one of the 5G pioneers, and has live commercial 5G operations in Europe, Asia, and the Americas. The company is involved in 31 of new networks, in 17 countries, producing 5G capable handsets, creating business platforms that allow IoT and industrial expansion via 5G expansion, and creating networks with enhanced connectivity for all applications.
On the financial front, ERIC finished 2019 with 4% year-over-year sales growth. The top line came in at $22.5 billion. Q1 results, reported earlier this week, were disappointing – but that was expected in the wake of COVID-19 disruptions. EPS was below expectations and fell 22% yoy, to just 7 cents, while quarterly revenues came in at $5.124 billion, down 4.7% you and also below estimates.
Even with that quarterly performance, ERIC shares were recently upgraded by 5-star Cowen analyst Paul Silverstein. He bumped the stock from Neutral to Buy, and his $10 price target indicates his belief in a 25% upside potential. (To watch Silverstein’s track record, click here)
In his comments, Silverstein justifies his upgrade: “We expect little, if any, adverse impact from COVID-19 on service provider demand in CY20; rather, we’ve seen a number of datapoints indicating robust—actually a surge in—bandwidth consumption related to COVID-19…” Looking ahead at 5G, Silverstein adds, “We expect ERIC to gain market share in 5G driven by ongoing competitive challenges at NOK due to cost structure issues related to ongoing technical challenges and at Huawei due to ongoing geopolitical issues, with the latter we think further exacerbated by the COVID-19 crisis.”
Wall Street clearly agrees that ERIC shares have a bright future; the stock has 5 Buy ratings, making the Strong Buy analyst consensus rating a unanimous decision. The stock is selling for $8.04, and the $10.50 average price target suggests it has room for 31% upside in the coming 12 months. (See Ericsson stock analysis on TipRanks)
Tower Semiconductor (TSEM)
From networking, we move to the semiconductor chip industry. Tower is a fabricator, manufacturing a wide range of chips for the bigger-name chip companies. Among Tower’s customers are some of the best-known names in semiconductor space: Broadcom, Intel, Samsung, Skyworks. Tower has 7 fabrication facilities, located in California, Texas, Israel, and Japan.
The success of 5G will depend, in part, on the reliability of the processor chips behind it. Tower is expanding its capacity to produce the 200mm and 300mm capable chips that are in growing demand for 5G compatible handsets. In addition, the company is pursuing new development in existing technologies, including Silicon Germanium and Silicon-on-Insulator, to improve the manufacture of 5G capable network chips. Tower is developing the chips that will relieve the congestion of the 5G spectrum, and allow service providers to exploit the full capabilities of the new networks.
Like other companies involved in 5G, Tower expects its business to expand in 2H20, as economies begin to reopen. Every piece of hardware in the new network systems will require multiple semiconductor chips, and fabricator like Tower, which has been involved in 5G for the last two years, and works with the major brand names in the industry, is ideally positioned to gain from that demand.
Needham analyst Rajvindra Gill, ranked 5-stars by TipRanks, sees two major factors giving Tower Semiconductor a boost. First, he says “there have been no interruptions with major supply chain materials or any changes to air and sea freight lines. Its factories are spread throughout the globe, minimizing potential future disruptions.” And looking ahead, Gill writes, “We view TSEM as a key beneficiary of the 5G cycle, both on the smartphone & infrastructure side. 5G RF switches and LNAs in handsets are built on high end RF SOI technology, TSEM’s sweet spot.”
Gill maintains his Buy rating on TSEM shares, while his price target, at $27, suggests that the stock has room to grow an impressive 51%. (To watch Gill’s track record, click here)
Tower’s analyst consensus rating is a Moderate Buy, based on 3 recent reviews that include 2 Buys and 1 Hold. The average price target is $24.73, which indicates a robust 39% premium from current levels. (See TSEM’s stock analysis on TipRanks)
Inseego Corporation (INSG)
The last stock on our list, Inseego, is one of the relatively few companies to have seen heavy stock gains over the past three months. INSG shares have gained 35% since the bottom fell out of the markets at the end of February, with most of that gain coming in a sharp spike that started in the first week of this month.
That share price spike came after Inseego, which specializes in solutions for mobile wireless systems and hotspots, announced a surge in production to meet increased demand. The company’s products are a range of modems, routers, and mobile hotspot devices, and they are now in high demand as tens of millions of workers are making remote connections with their offices. Inseego’s devices are quickly becoming an integral part of the emerging nationwide 5G network, whose capability enhancements over existing 4G is also in high demand. In short, the COVID-19 economic restrictions, which have been so devastating for most companies, have given a great windfall to Inseego.
Looking ahead, Inseego has continued clear prospects. The company’s MiFi 1000 portable hotspot device is used by Verizon to expand mobile broadband on the 5G networks.
Canaccord’s 5-star analyst Michael Walkley very clearly lays out the case for INSG stock: “The increasing number of people working and studying from home is driving strong demand for Inseego’s current products. We also believe Inseego has strong global customer engagements for its growing 5G product lines spanning mobile, enterprise IoT and fixed wireless access. While Inseego launched the industry’s first 5G mobile hotspot with its 5G MiFi M1000 at Verizon, next generation MiFi products with Qualcomm’s X55 modems should drive continued strong demand for Inseego’s ramping global 5G sales.”
Walkley puts a $14 price target on the shares, showing his confidence in a 14% upside for Inseego, and backing his Buy rating on the stock. (To watch Walkley’s track record, click here)
Inseego’s strong share price performance and sound prospects have brought it a unanimous verdict from Wall Street’s analyst consensus: A Strong Buy, based on 5 recent reviews. Shares are currently trading at $12.47, and the recent price spike pushed INSG right through its average price target. The analyst corps hasn’t yet adjusted their outlook – but expect to see pride target adjustments here in the near future. (See Inseego stock analysis on TipRanks)
To find good ideas for 5G stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.