5G Stocks that will Power your Portfolio

Posted on Thursday, August 15th, 2019 Chris Markoch

On a recent weekend trip, I was made aware that the future was closer to reality than I thought.  While walking through the city, I did a double-take when my son said, “Dad, why does my phone say 5G?”

I took out my phone and there it was in the upper left-hand corner of my screen. Instead of “4G LTE”, my screen said “5G”.  

I knew what 5G was, and I knew that the infrastructure rollout had started. But I didn’t realize that it was expanding so quickly. You see, we live in a small city that is really more of a large town. I knew we would be among the last communities to reap the advantages of 5G. But while I had heard the technology was rolling out in “major metropolitan markets”, I wasn’t aware that it was already expanding to include mid-size markets as well.

What is 5G and what does it mean?

In case you’ve read this far without knowing what 5G is, it stands for the fifth generation (i.e. 5G) of mobile network technology. 5G promises data delivery speeds that are 100 times faster than our current 4G devices. If some experts are to be believed, 5G may quickly take the place of a traditional Wi-Fi connection.

But that would be called burying the lead.

In addition to offering greater speeds and lower latency (i.e. minimal delays in data processing), 5G will deliver on the promise of being able to connect more devices (i.e. allowing different devices to “talk” to each other). 5G is the critical ingredient into artificial intelligence (AI) that will be necessary for applications like autonomous vehicles, virtual and augmented reality and the internet of things (IoT).

The 5G network has to be built from scratch

But unlike the bump from 3G to 4G, the shift to 5G is causing a tremendous investment in infrastructure. And that gives investors a tremendous opportunity. Because while you can certainly look at companies like Apple, AT&T, and Verizon who are developing 5G-compatible devices, there are other companies that will be critical to building the infrastructure. Here are a few names for you to watch.

These two companies have all their chips in 5G

The first company we’re looking at is Xilinx (NASDAQ: XLNX). Xilinx is a $29 billion chipmaker that is set to benefit from the 5G revolution because its chips will power the components that are needed. The trade war with China has put downward pressure on the stock price of most semiconductor companies. Xilinx looks to be no different. The forward guidance the company gave after releasing their fiscal first-quarter earnings suggests they expect to see a significant decline in revenue and earnings due to shipping restrictions to Huawei. However, the company recently started shipping its next generation of chips to customers. Companies that are competing in the 5G space will be relying on XLNX which, if nothing else, will keep the stock steady as the trade war sorts itself out.

Another company to look at is Qualcomm (NASDAQ: QCOM). The company holds numerous 5G intellectual property patents which were creating licensing issues between the semiconductor company and Apple. After a lengthy legal battle, QCOM came out with a settlement that ensures it will be providing chips for the iPhone for at least six years. And while Apple is issuing guidance that they are expecting lower iPhone sales in 2019 as consumers hold off for 5G, the company is expecting sales to pick up in 2020, which is a win-win for both Apple and Qualcomm.

Who will build all those new 5G cell towers?

The third company to consider is Crown Castle (NYSE: CCI). When we think about cellular phones, it’s common to think about the giant cell towers that popped up across the fruited plain. The difference between 4G and 5G is the distance that is required to ensure a fast connection. Cell towers that are currently in use could ensure connections across long distances. 5G technology requires that there be antennas within several hundred yards of each other. That means in addition to replacing the towers that already exist, there will need to be tens of thousands of smaller towers created. That’s where CCI comes in. CCI is a real estate investment trust (REIT) that specializes in these “small cell nodes” and has plans to have a total of 85,000 built through 2020. The company has long-term contracts with the wireless providers that rent the tower space, giving CCI a recurring revenue stream. And CCI also offers a regular dividend, which currently sits at 3.22%.

Consider this 5G stock if the software is more your style

I’ve mentioned three companies that will be important in building out the physical 5G infrastructure. But 5G will also require a new software system. That brings us to VMWare (NYSE: VMW) a company that provides the technology that allows carriers to transmit multiple networks on the same hardware. With deals already in place with companies like AT&T, Vodafone, and Ericsson, the company has seen a $5 billion increase in revenue in the last five years with a corresponding increase in EPS and share price.

 

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