Wireless use in the United States and around the world is now pretty much ubiquitous, and it looks to stay that way for the foreseeable future. Plus, when you consider the devices that use wireless, the increase in capability and function since the release of the first smartphones just over 10 years has been tremendous and shall continue to stay that way one can only assume.
A new research report from Baird notes that the roll-out of 5G is well underway. 5G is the fifth generation of cellular mobile communications. It succeeds the 4G, 3G and 2G systems. 5G performance targets include high data rate, reduced latency, energy saving, cost reduction, higher system capacity and massive device connectivity. All are needed given today’s massive demand.
The analysts noted this in the report:
While the ramp of 5G is initially marked by the release of high band spectrum, core network upgrades will define true, zero-latency 5G. Some functionality will relocate from base stations to data centers. Field-programmable gate arrays are expected to benefit from real-time demand associated with C-RAN, sometimes referred to as Centralized-RAN, is a proposed architecture for future cellular networks on the network.
Three stocks rated Outperform at Baird are what they call 5G derivatives due to their exposure to potential business for the build-out. All are good picks for speculative accounts looking for alpha-generating ideas.
This stock could very well benefit from an increase in information technology and 5G spending, and the company does a sizable portion of its business with Apple. Analog Devices Inc. (NASDAQ: ADI) is a leader in the design, manufacture and marketing of analog, mixed-signal and digital signal processing integrated circuits for use in industrial, automotive, consumer and communication markets worldwide. It offers signal processing products that convert, condition and process real-world phenomena, such as temperature, pressure, sound, light, speed and motion, into electrical signals.
Last year the company introduced a highly integrated polyphase analog front end with power quality analysis designed to help extend the health and life of industrial equipment while saving developers significant time and cost over custom solutions. Achieving extremely accurate, high-performance power quality monitoring typically requires customized development, which can be expensive and time-consuming.
Analog Devices investors are paid a 2.09% dividend. The Baird price target for the stock is $110, and the Wall Street consensus price target is $108.95. The shares closed Tuesday trading at $91.86.
This is another chip company that the Baird team likes for a 5G infrastructure and small cell play. Semtech Corp. (NASDAQ: SMTC) is a supplier of analog and mixed-signal semiconductor products. It designs, develops and markets a range of products for commercial applications, which are sold into the enterprise computing, communications, consumer and industrial end markets.
The company’s product lines include Signal Integrity, Protection, Wireless and Sensing, and Power and High-Reliability. Applications for the industrial market include video broadcast studio equipment, automated meter reading, wireless charging, military and aerospace, medical, security systems, automotive, Internet of Things, industrial and home automation, and video security and surveillance.
Semtech also focuses on enterprise computing end-markets including desktops, notebooks, servers, graphic boards, printers, data center–related equipment and passive optical networks. Communications end-market applications include wireless base stations, carrier networks, switches and routers, cable modems, signal conditioners and wireless local area network.
Baird has a $56 price target, while the consensus target is $61.40. The shares closed Tuesday at $59.95.
Baird analysts also favor this one as they see them as a smartphone content and infrastructure provider as well. Skyworks Solutions Inc. (NASDAQ: SWKS) is the market leader in power amplifiers, front-end modules and other radio frequency (RF) components for mobile devices (handsets, smartphones, tablets) and communications infrastructure.
The company’s RF products are benefitting from a two to four times content increase in front-end RF from the migration to data-intensive 3G/4G smartphones from voice intensive 2G phones. And it is expected to jump even more with 5G adoption. The company also has benefited from an increased exposure to Apple products, and most on Wall Street see the potential for further margin expansion.
The $125 Baird price target compares with a consensus target of $117.88 and the most recent close at $86.81 per share.
While it remains to be seen exactly just how these companies are impacted by the 5G roll-out, one thing is for sure. They all have exciting prospects for the future and can be solid holdings for aggressive growth investors.