On Oct. 13, Apple (NASDAQ:AAPL) held its iphone 12 event. Since then, customer interest in 5G products and services has been on the rise. Today, we will discuss three 5G stocks to buy for the consumer boom.
Professor James E. Prieger of the School of Public Policy at Pepperdine University in Malibu, California, says his research finds “5G will be an important driver of economic growth in the nation. Investment to create 5G networks contributes directly to GDP, and $225 billion in capital expenditure will be needed over the next seven years or so to fully deploy 5G. However, this direct effect on GDP is only a small part of the total economic effects of broadband in general and 5G in particular.”
“5G will affect the labor market through direct and indirect means… The analysis here finds that 8.5 million jobs will be created over 2019-2025 compared to a counterfactual 4G-only world, with an average of 1.2 million jobs each year.”
Many analysts concur Apple is possibly one of the best 5G stocks for a long-term portfolio. Consumers upgrading mobile phones would also benefit carriers, such as T-Mobile US (NASDAQ:TMUS) or Verizon Communications (NYSE:VZ).
But other sectors are also likely to both contribute to and benefit from the 5G revolution. We can expect semiconductor stocks to benefit from an increased deployment of 5G. Furthermore, gaming companies like Electronic Arts (NASDAQ:EA) and Zynga (NASDAQ:ZNGA) will possibly feel tailwinds from 5G as cloud-based gaming will be faster. Speed will also benefit social media and internet companies like Facebook (NASDAQ:FB), Netflix (NASDAQ:NFLX), Snap (NYSE:SNAP), or Pinterest (NYSE:PINS).
Here are three 5G stock to buy for the consumer boom:
- LM Ericsson Telefon (NASDAQ:ERIC)
- Qualcomm (NASDAQ:QCOM)
- VanEck Vectors Semiconductor ETF (NASDAQ:SMH)
5G stocks: LM Ericsson Telefon (ERIC)
Swedish technology group Ericsson is a global supplier of wireless and wireline network infrastructure to the telecom services sector. Seasoned investors may remember the group as the inventor of Bluetooth technology. The company’s roots go back to 1876 and has around 50,000 patents.
In mid-July, the company released second-quarter results. Net income went up by 40% year-over-year and 13% from Q1 to Q2. It divides revenue into four segments:
- Networks (around 71.5% of revenue).
- Digital services (around 15.5% of revenue).
- Managed services (around 10.0% of revenue).
- Emerging business and other (around 3% of revenue).
“Despite the difficult environment we delivered a solid result,” CEO Börje Ekholm said. “Q2 organic sales were flat and gross margin improved to 38.2% (36.7%) YoY, including negative effects from strategic contracts. Free cash flow before M&A improved to SEK 3.2 billion. While the effects of Covid-19 create uncertainties, with current visibility we maintain the full-year targets for the group.”
Overall, investors were pleased with the metrics. The group’s 5G upgrade cycle is expected to bring accelerated growth in the coming quarters.
Year-to-date, ERIC stock is up about 26%. Any upcoming profit-taking may offer a better entry point into the shares.
San Diego, California-based Qualcomm is next on the list of 5G stocks to buy. It is important to underline that when we talk about current models of 5G phones, consumers are mostly looking at chips manufactured by Qualcomm. Its chipsets make up about three-quarters of its total revenue.
Its other source of revenue is mobile-phone royalties and licensing. The patent-licensing division collects royalties from 3G and 4G technologies that the chip giant helped invent. These royalties have become Qualcomm’s competitive advantage over the years. Other firms that manufacture or use chips have to obtain a license from the company.
In late July, the company announced fiscal third quarter ending June 28. EPS of 80 cents per share beat expectations. However, revenue of $4.89 billion was slightly lower than estimates.
CEO Steve Mollenkopf said:
“As 5G continues to roll out, we are realizing the benefits of the investments we have made in building the most extensive licensing program in mobile and are turning the technical challenges of 5G into leadership opportunities and commercial wins.”
The group will report earnings next on Nov 4. Since the start of the year, QCOM stock is up about 45% and the stock hit an all-time high in October. Long-term investors may consider buying the dips.
VanEck Vectors Semiconductor ETF (SMH)
Next on the 5G stocks list is an exchange-traded fund, or ETF. The VanEck Vectors Semiconductor ETF provides exposure to large-cap stocks involved in semiconductor production and equipment. SMH, which has 25 holdings, tracks the VanEck Vectors Semiconductor ETF Index.
The top 10 holdings constitute close to 60% of net assets, which stand at $2.9 billion. Holdings include Taiwan Semiconductor Manufacturing (NYSE:TSM), Nvidia (NASDAQ:NVDA), Intel (NASDAQ:INTC), Qualcomm, and ASML (NASDAQ:ASML). Almost 77% of the companies are US-based, followed by Taiwan, Netherlands, and Switzerland.
So far this year, SMH is up around 33% and hit an all-time high earlier in October. As we are in the middle of a busy earnings season, increased volatility is likely in the names that make up the fund. Potential investors may consider buying the dips.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.
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