In 2008, in the midst of the financial crisis, we learned that some banks were considered “too big to fail.” The phrase was used to justify the controversial Troubled Asset Relief Program, which funneled money to the giant Wall Street firms to keep them solvent.
Today, we’re bracing for the Coronavirus Recession – if it hasn’t arrived already. But times are different, and now we’re likely to find out that some trends are too transformational to derail – not even the coronavirus pandemic will stop them. The switchover to 5G is one of these. The technology has been available since 2017, and the networks started going online in 2019. 5G promises faster wireless internet access, with greater bandwidth and less latency, and is seen by some tech sector experts as the future of communications.
T-Mobile, AT&T, and Verizon have all rolled out 5G networks in the US, and 5G capable smartphones hit the markets last year (Samsung offers three such devices in the Galaxy line). The COVID-19 epidemic has slowed the advance of the new tech, mainly by shutting down the infrastructure work required to support the new network and by forcing delays in the launch of the latest 5G smartphones (for example, Apple normally announced new smartphone models in September, but there are reports that the iPhone 12 will be pushed back two months).
With 5G still on the horizon, even if that horizon is slightly more distant than anticipated, the tech sector is going to attract investors. Semiconductor chip makers, providing the microchips essential to all aspects of the 5G networks – from the transmitters to the towers to the handsets and more – will be on the front lines of the gains.
Investment research firm Craig-Hallum has tapped three such stocks as primed for big gains in 2H20; we’ve used the TipRanks database to pull the details.
Qorvo, Inc. (QRVO)
Qorvo is a well-known chip maker in the wireless niche. The company is best known for integrated circuits for communications apps – the chips that let your PCs, tablets, and smartphones connect to wifi networks. The company’s chips are used in cordless phones, industrial radio, remote meter readings, and wireless security.
Qorvo’s position as a chip supplier for 5G devices, however, supported the company’s fiscal Q3 2020 results. The company showed solid sales in wifi and 5G components, while the popularity of Qorvo chips in the Chinese, Japanese, and Korean markets – all of which are moving steadily into 5G – helped quarterly revenue rise 4.4% year-over-year. The company’s Mobile Products division was both deeply connected to 5G and a main driver of QRVO’s gains.
5-star analyst Anthony Stoss, reviewing QRVO for Craig-Hallum, sees the current COVID-19 containment measures presenting a possible long-term gain for Qorvo stock. He writes, “With the world currently moving online, networks are being constrained. Countries/governments as well as businesses are now aggressively pushing to roll out 5G… We think QRVO will benefit from a faster 5G rollout as they should see higher content in 5G phones as well as 5G base stations.”
Stoss gives QRVO shares a $100 price target and a Buy rating. His target suggests an upside potential this year of 16%. (To watch Stoss’ track record, click here)
The Street largely seems to echo Stoss’ positive sentiment, considering TipRanks analytics showcase QRVO as a Buy. Out of 18 analysts tracked by TipRanks in the last 3 months, 11 are bullish on Qorvo stock, while 7 remain sidelined. With a potential upside of 30%, the stock’s consensus target price stands at $112.27. (See Qorvo stock analysis on TipRanks)
Skyworks Solutions (SWKS)
Next on our list is Skyworks, a mid-cap semiconductor maker that is a major supplier to Apple’s iPhone line. Skyworks is a well-regarded company with quality products, but it does provide a lesson in the dangers of over-specialization: it brought in 51% of its total 2019 revenue from Apple. Skyworks had trouble gaining traction through much of 2019, until Apple started gaining solidly in final third of the year.
That weakness can also be a source of strength. As a major chip supplier for the iPhone line, Skyworks shares the 900-million strong – and very loyal – Apple customer base. And with Apple preparing to release 5G capable iPhones later this year, even if they arrive late, Skyworks is looking at strong demand for its own products in 2H20.
Skyworks has at least one other latent advantage, as well. Its manufacturing facilities are US-based. When COVID-19 epidemic restrictions are lifted, that domestic supply chain will have an easier recovery than competitor companies with greater international exposure.
In his review of SWKS, Craig-Hallum's Anthony Stoss sees Skyworks’ Apple exposure as a possible risk, but one that is outweighed by the company’s overall strong outlook in 5G and Wifi 6 products. He writes of the company, “We think SWKS will benefit from a faster 5G rollout as they should see higher content in 5G phones as well as 5G base stations. Additionally, with people moving to work from home and students moving to online learning, we see rising demand for better Wi-Fi connectivity as well. SWKS should benefit as Wi-Fi 6 adoption ramps up.”
Stoss backs his Buy rating on SWKS with a $110 price target, indicative of a 15% upside potential over the next 12 months. (To watch Stoss’ track record, click here)
All in all, Wall Street sizes up Skyworks as a ‘Moderate Buy’ stock, as the bulls edge out the cautious on the chip maker. In the last 3 months, SWKS has received 15 bullish Buy ratings versus 6 Holds. The consensus price target of $116.44 hints there could be 22% upside for investors, with the stock fetching $95. (See Skyworks stock analysis on TipRanks)
Marvell Technology (MRVL)
Last on our list is Marvell, a smaller name in the semiconductor chip market. This Silicon Valley company brought in $2.86 billion in revenues last year, realizing $179 million in profits. Marvell operates in 14 countries around the world and even after recent share losses boasts a market cap of $16.1 billion.
More importantly, Marvell boasts a strong industry position, bolstered by recent partnership agreements with major handset makers Samsung and Nokia. Marvell will provide the chips needed to power the new 5G devices by both companies. The Finnish device maker is getting ready to release a line of 5G products, and has said that Marvell’s role will be to “solve its 5G chip problems.” And by locking in a 5G agreement with Samsung, one of the world’s largest smartphone makers, Marvell has secured its position against competitors. Market watchers describe Marvell’s Samsung and Nokia agreements as ‘major wins.’
Guaranteeing major customers just ahead of their 5G device rollouts puts Marvell in a solid position in the semiconductor field. The news comes after the company beat its Q4 revenue and EPS forecasts; the combination of good news helps explain why, in the same time that the overall markets have dropped 17%, shares in MRVL has only slipped a net of 3.4%.
5-star Craig-Hallum analyst Christian Schwab points out that MRVL’s forward guidance has already taken COVID-19 disruptions into account, and is rosy otherwise. He writes, “The company’s Q1 revenue guidance is ~5% lower than it would have been without any impact from the virus.” Schwab also points out that the partnerships with Samsung and Nokia will propel Marvell for the long term: “The company highlighted it has begun the ramp of Samsung’s first generation 5G processor, won their next generation 5G baseband processor, and announced a deeper collaboration with the customer. Nokia also announced earlier yesterday a broadening relationship for the development of multiple generations of 5G infrastructure processors. 5G business with Nokia is expected to ramp largely in 2021.”
Schwab’s $30 price target implies a 16% upside for the stock and backs up his Buy rating. (To watch Schwab’s track record, click here)
All in all MRVL shares have a Strong Buy from the analyst consensus, based on no fewer than 12 Buy ratings overbalancing 2 Holds and 1 Sell. Meanwhile, the $28.79 average price target suggests that there is room here for a 11% upside potential. (See Marvell stock analysis on TipRanks)
To find good ideas for 5G stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.