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What happens when tech stocks slip into the penny profile? Huge potential – and solid reviews from some of the Street’s top-rated analysts. And why not? For investors, the digital tech field is a target-rich environment. Established companies and their newer competitors make headlines, and a spate of IPOs has brought new billion dollar unicorns to our attention. And with the rollout of 5G digital networks, there are more opportunities than ever in tech.
And penny stocks – equities priced under $5 per share, the modern analogue of the stocks that once sold for a penny – are a niche that’s ripe for gains. Their low price means that even a small incremental gain will translate into large percentages.
Of course, both tech and pennies offer risks as well as reward. New tech companies fail as often as they thrive, and some penny stocks are priced that low for a reason. But for investors willing to shoulder the risks, the potential rewards are there.
With this in mind, we’ve used the TipRanks database to seek out two stocks, closely related to 5G, and both trading in the penny range. Better yet, both have gotten highly positive reviews from 5-star analysts with the investment firm Needham. Let’s find out what the analysts had to say.
We’ll start with Resonant, a company involved in the nuts and bolts of wireless networking technology. Specifically, Resonant is known for its radio frequency filters, a vital piece of circuitry that screens out ‘noise’ in wireless radio transmission. This is vital in all wifi applications, but especially so in 5G, as the new tech involves higher frequencies, greater density of data transfer, and faster timing. Keeping out the static and interference is essential to making 5G work.
This is where Resonant steps in. The company‘s WaveX software platform offers tools for customers to fine-tune their RFFE (radio frequency front-ends). Resonant’s tools make it possible to solve issues of carrier aggregation and band proliferation. This upgrade to Resonant’s product line improves its applicability to 5G and other high-end wireless tech.
Resonant reported solid numbers in the first quarter (the latest reported quarter), with a 25% sequential gain in RF filters products shipped out, and sky-high 437% year-over-year gain. In raw numbers, it was 8.6 million filters shipped. The Q2 numbers are looking even more impressive. While the quarterly reports has not been released yet, preliminary info shows that the company shipped 17.5 million filters in the quarter, nearly double the Q1 number, which was already a record. These numbers reflect customers capitalizing on the WaveX design tech – and represent 450% yoy growth.
Needham's 5-star analyst Rajvindra Gill is impressed with Resonant’s forward potential, writing, “We are still in the earliest innings of the 5G deployment cycle, with most cycles peaking 13-14 years after initial launch (2019 for 5G). The maximum potential of 5G, which is both speed and latency gains, will not be possible without new filter technology on both transmitters (base stations, routers) and receivers (consumer devices). Resonant has developed a new generation of filter that uses old production methods, which are lower cost and have a wider production base, and could gain significant traction as new filters becomes a requirement to maximize the potential of 5G globally.”
The analyst added, "The stock has underperformed the SOX... and is now trading at~10x EV/Sales on our 2022 estimate, slightly higher than its 8x 3-year median. We believe this underperformance brings an opportunity to buy shares at an attractive price, with over 100% upside... one of the largest in our coverage universe."
Unsurprisingly, Gill rates RESN a Buy, and his $6.25 price target implies a one-year upside potential of ~115%. (To watch Gill’s track record, click here)
RESN has not attracted a lot of analyst attention, but those who have reviewed the stock agree with Gill's assessment. The stock has a unanimous Strong Buy analyst consensus rating, based on 3 positive reviews. The average share price target for RESN is $6.08, and implies ~109% upside from the current trading price of $2.91. (See RESN stock analysis on TipRanks)
Ceragon Networks (CRNT)
And now we’ll turn to Ceragon. This company makes wireless hardware, the physical devices that make wifi connections happen – especially in the backhaul segment of the networks, connecting the urban cores to peripheral areas. Ceragon’s hardware is found in 5G networks in both cities and suburbs, giving the company a solid foundation to build from as the new networks expand.
And Ceragon is making itself a part of that expansion. In early July, the company announced its most recent agreement with a US service provider, for multi-year managed services. The customer company will use Ceragon’s services to improve performance on its fiber optic network.
That was just the latest expansion of Ceragon’s business in the US. Also in July, the company announced new business from India. Several of the south Asian giant’s Tier-1 operators have contracted with Ceragon for follow-on orders previous services. These orders will expand their networking footprint in India, and put Ceragon’s platforms at the center of India’s 5G rollout. The Indian orders are worth at least $35 million.
All of this, and more, caught the eye of Needham’s 5-star analyst Alex Henderson.
“Ceragon has been selected by three US SPs to deploy its microwave products for 5G to improve performance and network density... Recent wins highlighted not just its superior microwave platform, but also stressed its software and services capabilities. Punctuating this point, Ceragon followed this win by announcing a major US provider has contracted for a multi-year managed services deal. 5G front haul and new products give us confidence in the longer term outlook. Ceragon noted Indian orders over $35 million, reaffirming our view that India is rebounding even as the COVID remains an issue in that economy," Henderson wrote.
To this end, Henderson gives CRNT shares a Buy rating, on the strength of ‘looming 5G demand.’ His price target, of $4.75, suggests ~31% upside this year. (To watch Henderson’s track record, click here)
Sometimes, low-priced stocks slip under the radar – and Ceragon has picked up only 2 recent analyst reviews. They both agree, however, that this is a stock to Buy, giving CRNT its Moderate Buy consensus rating. The shares are trading for $3.65 and have an average price target of $5.65, giving them an upside potential of ~55% for the next 12 months. (See CRNT stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.