This time last year, most people would have said: “What’s the big deal about 5G? 4G works just fine for me.” That’s if they’d even heard about the 5G wireless upgrade in its early stages. In its 2018 survey, “The promise of 5G,” PricewaterhouseCoopers found that only 46% of Americans knew about it.
And to be fair, at first 5G was touted as just “faster downloads.” Now, I certainly remember the days when it took two minutes or more to load a webpage, like we dealt with in the 1990s – so the chance to download a whole movie in six seconds is pretty impressive.
But 5G is much more than that. Think about all the web services that are going to the “cloud”; you’ll be able to interact with them in real time. Think about hand-free “note-taking” by simply talking to a digital assistant, like Amazon Alexa. Think about self-driving cars. Sounds futuristic, but we’re well on our way. And at least a computer can’t have road rage or fall asleep at the wheel. It just needs human-like “reflexes” first. And that’s the kind of revolutionary difference 5G offers.
The 5G global infrastructure market is expected to grow from $2.55 billion in 2020 to over $42 billion by 2025. That’s a 75.1% CARG increase in just one market — far larger than many other industries could ever imagine in just five years.
Those are the kind of numbers that makes Wall Street sit up and take notice. Just look at the action in 5G stocks, as measured by the First Trust IndXX NextG ETF (NXTG). The fund was just revamped as a 5G ETF in late May, and already it’s up 13.6%, as you see below. When you compare to the S&P 500 (which had a very rough summer), that’s over 1.5X the gain in the broad market.
So, today I want to take a look at your options for buying 5G stocks.
When you subject them to the strict criteria I programmed my Portfolio Grader to use, you’ll see that some 5G stocks make great buys – and others are best avoided.
For example…those of us who have monitored the 5G opportunity will recall that China is investing big in 5G. And I mean BIG: China’s tech ministers are expecting to invest 2.8 trillion yuan in 5G mobile networks by 2030. That’s roughly $400 billion!
That being the case, China Mobile (CHL) might seem like a logical way to play 5G. Well…not when you run it through my Portfolio Grader:
CHL’s fundamental grades are almost wall-to-wall “C”s. There’s also one ugly “D,” due to downward revisions in Wall Street analysts’ earnings projections for China Mobile.
CHL also earns a “D” for its Quantitative Grade. That reflects my proprietary formula for measuring buying pressure from big money on Wall Street, like mutual funds and hedge funds. So, to me, that says the U.S.-China trade war has not been kind to this stock. But until its fundamental grade comes up, it’s not a great long-term bet on the 5G future, either.
Then, for a more direct play on 5G, you might look at Ericsson (ERIC), the Swedish telecom equipment company. Here’s ERIC’s report card:
In terms of the Quantitative Grade, ERIC’s is more respectable. But its fundamentals aren’t any stronger than China Mobile’s. In fact, Ericsson’s Earnings Momentum is actually worse. If bulls on this stock want to argue that ERIC has a bright future, it simply isn’t showing up in the numbers at this juncture.
The final 5G stock I want to highlight is Ciena Corporation (CIEN). Now this is a nice Report Card:
Ciena is an American company, headquartered in Hanover, Maryland. It’s another telecom equipment company – but look at its earnings, and you’ll see why it pays to do your homework and find the strongest companies to invest with:
In September, Ciena beat expectations for both sales and earnings. Revenues rang in at $932.5 million for the previous quarter. That was 3% better than analysts had expected – and earnings were even better. At $112.3 million, earnings were 25% better than projected. This was also a 51.1% gain over the year-ago quarter!
In my Accelerated Profits newsletter, I was undeterred by the 6% pullback CIEN then made. It “appears that investors used it as an excuse to book some profits.”
CIEN has pulled back a bit more since then, which is probably why the Quantitative Grade is a step below its Fundamental Grade of “A.” But overall, Ciena is a B-rated “Buy” in Portfolio Grader.
Network equipment, especially fiber optics, is instrumental to the big telecoms deploying 5G, and that’s what CIEN brings to the table.
Beyond 5G, there are just as many great buys in other corners of the market, as we’re finding with Project Mastermind.