Now is an excellent time for investors to start looking for the best 5G stocks to buy for 2021.
Although the transition to 5G mobile networks actually began in 2018, it is only now kicking into high gear. The trigger is the arrival of Apple Inc.'s (NASDAQ: AAPL) 5G-capable iPhone 12 devices.
Apple is known for lighting a fire under new technologies (like the iPod did with digital music) and 5G will be no different.
And make no mistake - 5G is a big deal. This long-awaited transition will generate billions of dollars in profits across multiple industries.
Networks based on 5G will eventually be 20 times faster than the current 4G/LTE networks, with 100 times the capacity and latency (responsiveness) as low as 1 millisecond.
That will not just make your smartphone faster, but will enable a range of new uses that will revolutionize industries as diverse as healthcare, transportation, "Internet of Things" devices, and agriculture.
That said, investors need to be wary of the "obvious" 5G stocks.
Don't Be Distracted by the Carrier 5G Hype
We've got much better, more timely plays, which we'll get to in a moment.
You see, most of the benefits of 5G are years away, including those futuristic uses noted above. That's because the 5G networks aren't yet fully baked, despite all the hype from the U.S. carriers. Much work - and much spending - needs to be done by the carriers before 5G is built up enough to realize its full potential.
A report put out in March by GSMA, a trade organization for mobile network operators, predicted its members would devote 80% of their capital expenditures - about $880 billion - on 5G over the next five years.
So companies on the receiving end of that spending - the firms building and installing the 5G hardware - are one place to look for investing opportunities.
A Money Morning PSA: If you own these stocks, drop them immediately. Learn more...
The carriers are also boosting other 5G opportunities with their heavy dose of advertising. While designed to lure customers away from rival carriers, the ads will mainly serve to boost sales of 5G-enabled smartphones.
That points to the stocks of smartphone makers like Apple. But while Apple will benefit, the biggest gains will go to the smartphone suppliers.
Most of the suppliers serve multiple vendors, including Apple, Samsung, Xiaomi, and others. They stand to get a massive boost from the transition to 5G.
The five 5G stocks to buy we're looking at today draw from both of these "will-benefit the-most" categories.
The 5 Best 5G Stocks to Buy Now
- Best 5G Stock to Buy No. 1: Corning Inc. (NYSE: GLW)
Corning supplies fiber-optic cable needed for the "backend" of cellular networks. It's also been working with Qualcomm Inc. (NASDAQ: QCOM) on the small-cell antennas needed to push the 5G signal into buildings. In addition, Corning's "Gorilla Glass" has been used for most smartphone screens ever since the late Steve Jobs ordered it for the original iPhone in 2007. A new, tougher version called "Ceramic Shield" is actually one of the iPhone 12's selling points. This one-two-three punch puts GLW in a great position to benefit from 5G.
The COVID-19 pandemic hurt Corning's earnings, but the company is now poised to benefit from 5G catalysts and an economic rebound. In the second quarter, sales of Corning's 5G-related businesses rose sequentially despite the slowdown. Since June, analysts have increased their 2020 earnings per share estimate from $1.07 to $1.26. According to Factset, the current EPS estimate for 2022 is $2.09 - a 66% increase from the 2020 estimate. That should translate to solid gains over the next couple of years. GLW trades at about $35. Corning has a dividend yield of 2.5%.
- Best 5G Stock to Buy No. 2: Qorvo Inc. (NASDAQ: QRVO)
Chipmaker Qorvo gets 33% of its revenue from Apple, and so will benefit if the iPhone 12 does well. Qorvo makes RF (radio frequency) modules for both mobile devices and the network base stations to which they connect. More than two-thirds of the company's business is exposed to 5G.
QRVO stock is up about 75% over the past 12 months, but don't let that deter you. Analysts have been raising their price targets lately. Karl Ackerman of Cowen & Company raised his target on Qorvo to $165 earlier this month. That would be a 29% gain from the current price of $136. But Factset estimates Qorvo's earnings per share will rocket to $6.99 by 2023 from $4.12 for its current fiscal year. If the price-to-earnings ratio stays about where it has been for the past 15 months, that will push QRVO shares to $276 - a gain of 103%. Qorvo does not pay a dividend.
- Best 5G Stock to Buy No. 3: Skyworks Solutions Inc. (NASDAQ: SWKS)
Skyworks, like Qorvo, makes RF chips. It depends even more on Apple, getting 51% of its revenue from the tech giant. And 71% of the firm's business has exposure to 5G. Not only will it benefit from a surge in smartphone upgrades, but Skyworks also expects to make much more revenue per phone sold. "So you could be looking at platforms that in a 4G world maybe offered $4 to $5 for us; in a 5G world, it could be $8 to $10, or even $15," CEO Liam Griffin said in the July earnings call.
SWKS has also done well over the past year, rising 73%. But with earnings expected to jump 61.5% over the next two years, this stock has plenty of room to run. A P/E of 30 would put Skyworks at about $218 in 2022 - a gain of 42% over the current price of $153. SWKS pays a dividend yield of 1.32%.
- Best 5G Stock to Buy No. 4: American Tower Corp. (NYSE: AMT)
American Tower is a real estate investment trust (REIT) that leases space on its towers to mobile carriers. It operates 181,000 towers in 19 countries. While some older equipment will be swapped out for the new 5G gear, as luck would have it, 5G hardware is bulkier and requires more components than 3G or 4G. That means AMT will be reaping more rent from the carriers as the transition progresses. And that's recurring revenue. Both revenue and adjusted funds from operations (AFFO) have increased at an annual rate of 13% for five years.
In January 2019, I named AMT as a top 5G REIT, and it hasn't disappointed. The stock is up 48% since I recommended it. But the 5G opportunity will keep fueling profits. Factset estimates put EPS at $6.22 in 2023, which at a P/E of 60 - the five-year average P/E - gives you a price of $373 a share. That's a gain of 53% from the current price of $244. If you hold on until 2025, the EPS jumps to $7.53, which will put American Tower at $452 - a gain of 85%. AMT also pays a dividend of 1.78%. And it raises the dividend every quarter.
- Best 5G Stock to Buy No. 5: Keysight Technologies Inc. (NYSE: KEYS)
Keysight makes testing equipment for the communications, electronics, and aerospace industries. That includes both the 5G chipmakers and the cellular companies. Virtually every top telecom equipment supplier, mobile carrier, and semiconductor company in the world is a Keysight customer. The company has made several acquisitions over the past few years to expand its 5G expertise. As a result, its Commercial Communications division revenue had a compound annual growth rate (CAGR) of 23.38% from 2016 to 2019.
Keysight stock has about kept pace with the overall market over the past 12 months; it's up about 7.6%. But it's poised to jump. The one-year consensus target is $125, about 18% above the current price of $106. But EPS estimates of $5.01 for 2022 translate to a KEYS price of $165, assuming the P/E stays at about 33. That's a gain of 55.6%. Keysight doesn't pay a dividend.
Three Stocks We Like Even More Than Skyworks, American Tower, and Keysight
Our Shah Gilani just named three stocks he says are "screaming buys" right now.
All three are trading at a discount... are under-the-radar companies most people haven't even heard of... and have massive tailwinds with the potential to make their prices skyrocket.
Go here to watch Shah give you the company names, tickers, and price targets for three stocks that belong in EVERY portfolio.
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.