6 Stocks Poised to Score Big on the 5G Wave
Nokia and Ericsson: The European 5G Hometown Advantage
Nokia Corp. (NYSE: NOK) has been a disappointment to investors for years now. Being the amalgamated Alcatel, Lucent and Nokia gives this company a deep opportunity throughout the entire western hemisphere as nations look to stay away from Huawei in their infrastructure. A recent U.S.-Poland security declaration has put more pressure on Huawei/ZTE 5G equipment and added greater security scrutiny that may just be that much more of a win for Nokia. Merrill Lynch puts the 5G opportunity at $12 billion annually in calendar year 2020 for Europe alone.
The same opportunities for Nokia had offered a floor for Ericsson, or Telefonaktiebolaget LM Ericsson (NASDAQ: ERIC), in Europe and the western hemisphere. That said, Ericsson’s American depositary shares have dropped handily after peaking at $10.46 in April and then riding the “sell in May” wave lower and lower since. Those shares were last seen at $7.95, and most of the analysts who see upside (consensus was last seen at $10.56, above its 52-week high) also see the sell-off as having been way too overdone to the downside.
With Europe’s 5G network presenting close to a $12 billion opportunity in 2020 alone, and with Huawei/ZTE having a much harder time getting new business in Europe, the potential wins for the two companies are significant as both are based in the European Union. Ericsson’s revenues of $24.3 billion last year and Nokia’s revenues of $26.7 billion leave a lot of room for upside for the “hometown team” to win business.
Qualcomm: Beyond Just Worrying About Apple
Qualcomm Inc. (NASDAQ: QCOM) continues to have significant wins from 5G. After all, ever faster connections are going to require ever better processors for smartphones, where Qualcomm has a substantial premium to rivals. The big overhang remains how Apple and Qualcomm will treat each other in the future. Apple would love to go entirely around using the premium Qualcomm chipsets and antitrust issues, suits and settlements that frankly are hard to predict how they will turn out in future years. That said, a new iPhone refresh cycle, and an iPhone professional version, offer Qualcomm significant business ahead, on top of all the other devices outside of Apple products that can bring future connectivity to 5G. Qualcomm comes with caveats, but the history of the company and its aim to diversify would indicate that Qualcomm won’t sit on the sidelines on the 5G opportunities in the coming years.
A wave of analyst upgrades in April was followed by one of analyst downgrades over the summer, which keeps Qualcomm’s share price in limbo at the current time. With shares close to $79, it is effectively right at its consensus analyst target from Refinitiv, and its shares are still actually closer to the highs of a longer-term band as the 52-week range is $49.10 to $90.34. Some Wall Street analysts had called for Qualcomm to rise to over $100, and the official street-high target price listed is the Raymond James $115 target.
CommScope: Hail Mary, Arris, Ruckus and All
A smaller wild-card would-be winner in 5G is CommScope Holding Co. Inc. (NASDAQ: COMM). This is more financially leveraged now that it has paid up aggressively to acquire Arris in a deal that initially had been touted as a $7.4 billion transformation. The Carlyle Group even threw its hat back into CommScope ring as a part of the deal. The stock was last seen trading near $11 a share, with a mere $2.15 billion market cap, but the $10.3 billion in long-term debt is acting as a cap on the stock even valued at only five times expected earnings. CommScope has gone beyond many of the 5G ambitions, with its 8.5 gigabits per second broadband network targeting speeds of 10 gigabits per second.
Credit Suisse has remained the most bullish of the large firms on the combined CommScope/Arris deal. Yet it has ratcheted its price targets lower ($27 on last look), and that target may have to be “rationalized” (lower) yet again as earnings disappointed and as a stock at $11 with a leveraged balance sheet may not be able to rise more than 150% all that easily. That said, the Refinitiv consensus target is $19.29, but the 52-week trading range of $9.52 to $31.38 tells how the story has played out for investors in 2019.