Later this year, the major carriers will start rolling out their 5G networks - an upgrade that will open the door to new revenue streams and new profit opportunities.
After studying what 5G can do, we've uncovered the best stocks to buy to maximize your profits from this revolutionary technology.
A study last year by Swedish networking equipment maker Ericsson (Nasdaq ADR: ERIC) estimated that new 5G-based opportunities could generate as much as $1.3 trillion in additional annual revenue by 2026 just for the carriers.
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5G is the next generation of mobile network technology, the successor to the 4G/LTE technology that most mobile phones use now. It's a huge leap forward.
Data delivery over 5G is 100 times faster than 4G and 10 times faster than even top-tier home broadband services.
At least as important as the big speed bump is the advance in "latency" or the lag between when you request data from the network and it arrives on your phone. The 5G technology shrinks latency from 50 millisecond to just 1 millisecond.
Given that 50 milliseconds is 50/1,000 of a second (or 5/100 if you prefer), the difference may seem insignificant. But near-instant communication is critical to key new 5G use cases, particularly those that fall under the umbrella of the Internet of Things.
Over the next decade, the arrival of 5G technology will create a lot of winners. In the short term, equipment manufacturers like Cisco Systems Inc. (Nasdaq: CSCO) and chipmakers like Qualcomm Inc. (Nasdaq: QCOM) will benefit the most.
But bigger, longer-term benefits will accrue to the telecom industry...
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In truth, the carriers, particularly those in North America, would gain little from the 5G upgrade if it only served existing smartphone customers.
Every generational upgrade costs the carriers billions of dollars. Research firm Moor Insights & Strategy estimates spending on the 5G buildout through 2025 will exceed $326 billion.
But the carriers won't get the payoff they were able to get from the earlier upgrades, which helped boost revenue by luring in new customers and enticing them to trade in feature phones for pricier smartphones.
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By now just about everyone in North America who wants a smartphone has one. So other than providing fodder for fresh advertising campaigns, 5G won't do much to increase revenue from the existing mobile market.
That's why some critics have said 5G is a bad deal for the carriers and have predicted a very slow transition to the new tech. But that's not what the equipment makers are seeing.
Both Nokia Corp. (NYSE: NOK) and Ericsson said at the Mobile World Congress in February that the carriers had moved their 5G timetable up by a full year. They anticipate heavy spending on 5G upgrades to start later this year, not in the second half of 2019 as had been expected.
The carriers aren't fools. They wouldn't be investing in 5G if they didn't believe they'd get a return on the billions they'll be spending.
The multitude of new use cases for 5G will translate to a pool of $1.3 trillion in fresh revenue.
We're talking about technologies like the Internet of Things, in which devices will communicate instantly over the Internet to enable intelligent automation and other new capabilities. This includes uses such as autonomous cars, "smart" cities, connected homes, and virtual/augmented reality.
With 5G, the carriers will also have the bandwidth to provide a full range of wireless services over its network, including not just mobile phone and data, but broadband Internet and television as well.
"5G opens up all sorts of possibilities for applications and services we can't even dream of today because of the fact that you've essentially taken all the connectivity in a place and put it in your pocket," Alexander Brock, Rogers Communications Inc.'s senior vice-president of network technology, told The Globe and Mail in February. "I think that opens up an enormous amount of innovation capability."
The multitude of new business opportunities will put the carriers in an enviable position - as toll collectors on the world's fastest data superhighway. It's why the carriers are racing to deploy 5G tech as fast as they can.
The obvious stocks to buy to profit from this phenomenon are the big U.S. carriers: Verizon Communications Inc. (NYSE: VZ), AT&T Inc. (NYSE: T), and T-Mobile U.S. (Nasdaq: TMUS), which will rival the other two U.S. carriers in size if regulators approve its bid to buy Sprint Corp. (NYSE: S).
But while those three stocks are good ways to play the 5G revolution, the best stock to buy is not headquartered in the United States...
To find a better telecom stock than the three U.S.-based companies, one need only look north of the border.
Canada-based Telus Corp. (NYSE: TU) is the best 5G telecom stock in North America. One way we know this is because it has a Money Morning VQScore™ of 4.15, a clear buy.
For starters, Canada is one of the best countries in the world to run a telecom business. Because the three top companies avoid competing on price, Canadian mobile plans are among the most expensive in the world. Bad for customers, but great for the carriers' profits.
And when it comes to the 5G transition, Telus has a head start on rival Rogers Communications Inc. (NYSE: RCI) and BCE Inc. (NYSE: BCE). The higher speed and shorter range of 5G tech requires an extensive infrastructure of fiber optic cable as well as a large distribution of smaller transmitters, two areas in which Telus has been a leader.
"Telus management had the foresight to embark on its generational fiber and small cell investment even before 2015," Scotia Capital analyst Jeff Fan wrote in a research report earlier this year.
This means Telus not only has a lead on its rivals, but also has less in 5G-related capital expenditures ahead of it.
Beyond its 5G advantages, Telus is a healthy, thriving company. In its Q4 earnings, it reported a 121,000 gain in subscribers, its biggest quarterly net gain since 2011. And it followed two previous quarters of strong subscriber gains.
Telus also has by far the lowest churn rate among the Canadian big three (0.99% vs. 1.48% for Rogers and 1.35% for BCI), which means it's better at holding on to existing customers.
The company is forecasting growth of 4% to 7% for 2018 - and that's without the catalyst of 5G, which won't kick in until late 2019 or 2020.
Current FactSet projections put Telus' earnings per share at $2.48 in 2020. At a price-to-earnings ratio of 19 (about where it is now), that makes the TU 2020 price target $47.12. That's a 33% gain from the current share price of $35.28 - a nice pop for a telecom stock, and likely just a taste of the fat returns that 5G will bring.
But in addition to those gains, Telus investors enjoy a 4.41% dividend yield. Telus hikes its dividend consistently and has a plan in place to raise the payout at an annual rate of 7% to 10% through 2019.
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