Pundits and prognosticators like to talk about ‘revolutions,’ but what they usually mean by that is just ‘change.’ Some changes, however, truly are revolutionary, in their potential to forever alter the landscape that produced them. The ongoing rollout of 5G is one of these.
At first glance, 5G seems like just another step in the evolution of wireless networking– it’s like what came before, only faster. But digging deeper, 5G networks, based on higher radio frequencies into the millimeter waveband, will offer download speeds up to a gigabit per second, with further advantages gained through latency rates. The new networks will not just support smartphone operations and wireless internet – they will also enable practical wireless IoT operations, and offer the prospected of enhanced autonomous vehicles, reliable remote surgeries, and more versatile drone technology. As 5G networks expand, expect the devices that use them to grow ever more flexible.
But we’re early in the 5G development cycle, and there’s still plenty of time to make investments in the new technology. With this in mind, we used TipRanks database to pinpoint three stocks that – at first glance – don’t have a deep connection to 5G, but which Wall Street’s analyst say are set to gain from the expansion of the new networks.
Viavi Solutions (VIAV)
First on our list is Viavi Solutions, a company that develops and produces network testing systems. Viavi’s services include field and lab testing, operational assistance for network testers, and custom analytics for wireless networks. The connection to 5G is clear – as the networks expand, the new equipment will require testing before and during installation, and in the initial phases of activation. Viavi’s products and services have been part of this process since the first days of 5G development.
The company has positioned itself in an essential loop of the 5G chain, offering equipment for the validation, verification, and visibility of 5G networks. Viavi’s 5G business has been climbing steadily in recent years, and this was clear in recent quarters, when the company reported results in line with its historical reporting pattern despite the pressures of the coronavirus crisis.
Earnings fell off in calendar Q1, but that quarter typically shows the year’s lowest earnings. Calendar Q2 – for the company’s fiscal fourth quarter – results were higher sequentially, and also well above the forecasts. The results, released at the end of July, showed EPS of 14 cents, 55% above the estimates.
5-star analyst Richard Shannon, writing from Craig-Hallum, saw 5G as a leader in Viavi’s recent performance. He wrote of the stock, “VIAV’s F4Q results predictably came in ahead of guidance, as COVID impacts were more muted than expected, and 5G wireless continues to perform well… 5G lab/production equipment performed well, with some improvement in field instruments, while OSP was slightly below our estimate. The EPS upside was driven nearly equally from sales, GM and opex improvement.”
In line with these comments, Shannon gives the stock a Buy rating supported with a $17.50 price target. Shannon’s price target implies a strong 33% upside for the stock in the next 12 months. (To watch Shannon’s track record, click here)
Overall, the analyst consensus rating on Viavi is a Strong Buy, based on 6 Buys and 1 Hold set in recent weeks. The stock is selling for $13.18 and has an average price target of $16.50 – this suggests it has room for 25% growth over the coming year. (See VIAV stock analysis on TipRanks)
Keysight Technologies (KEYS)
Next up, Keysight, is another testing company. Keysight’s products are important in the lab equipment niche, important because every new 5G device that hits the market must pass rigorous lab testing before release. Keysight develops and markets the signal generators, oscilloscopes, multimeters, and in-circuit testers vital to production of the new 5G silicon chips.
The company benefited from early entry into the competitive 5G market, and offers a full line of testing equipment for 5G devices. Keysight is taking multiple approaches to 5G, working with both device manufacturers and network providers, making test platforms available for handsets and broadcast units alike.
Keysight’s earnings dropped off sharply in the first and second quarters of this year, during the economic downturn prompted by the response to the coronavirus. The recent fiscal Q3 results, however, showed a strong turn back to expected earnings levels – EPS came in at $1.11, up 58% sequentially and 48% above the forecast. Top-line revenues exceeded $1 billion for the quarter.
Susquehanna analyst Mehdi Hosseini, rated 4-stars at TipRanks, lays out a clear case for KEYS shares to gain in coming quarters: “With COVID impact on supply-chain now behind us, we expect KEYS to benefit from continued 5G/400G roll out in APAC and US... The diversification of KEYS’ product portfolio, providing downside risk protection, is also a plus… the segmentation of 5G helps sustain growth all while beginning to see the production phase of 400G Networking with increased 600/800G R&D.”
To this end, Hosseini rates KEYS a Positive (i.e. Buy) along with a $132 price target, suggesting a 36% upside potential from current levels. (To watch Hosseini’s track record, click here)
Keysight has a Strong Buy analyst consensus rating, based on 10 recent reviews breaking down to 9 Buys against a single Hold. The stock’s $125.67 average price target implies a one-year upside of 29% from the current trading price of $97.16. (See KEYS stock analysis on TipRanks)
Universal Display Corporation (OLED)
The last stock on our list may not seem, at first glance, to be connected to 5G. Universal Display is a leader in organic light emitting diodes (OLEDs), the cutting edge of electronic display technology. OLEDs are the high-end products in the LED market, and are used in both display screens and lighting systems. The display screen segment leads us to the 5G connection.
In recent weeks, news has broken that Apple (AAPL) will be using all OLED technology for the display screens on its upcoming 5G-capable iPhone 12 series. The smartphone maker has been using OLEDs on top-end iPhone models since 2017, but this year will mark the first time that the company will use the advanced screens on all of its new models. The iPhone 12 release is expected to be delayed this year, and will likely be unveiled in October.
Universal Display, with a leading position in the OLED market, is in a strong position to gain as more smartphones move to OLED screens. Apple’s iPhones command a 13.5% market share; industry experts are predicting that OLED will make up half of all new smartphone screens by 2022.
Cowen analyst Krish Sankar sees OLED as gaining both from the current opportunity as new 5G smartphones move more and more toward organic LEDs, and from the current state of the display market, with alternate screen tech still not ready for prime time.
“We remain bullish on Universal Display due to their technology lead, upcoming 5G smartphone cycle, and proliferation of OLED technology in large panels. We still believe alternate technologies such as microLED are at least two years away," the 5-star analyst opined.
Sankar backs his position with an Outperform (i.e. Buy) rating. His $200 price target indicates confidence in an 11% upside for the stock. (To watch Sankar’s track record, click here)
Overall, OLED's Moderate Buy consensus rating is based on 3 Buys, 1 Hold, and 1 Sell. The stock’s current trading price is $180.85, and the average price target of $189.40 implies a modest one-year upside of 5%. (See OLED 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.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.