The 5G upgrade cycle is imminent.
One of the biggest growth drivers in the tech world over the next couple of years will be the rollout of 5G wireless networks. The fifth generation of wireless networks will significantly ramp up global internet connectivity, producing a far faster internet connection with more capacity and less latency. In a nutshell, 5G networks will allow for more total connected devices, faster performance on those devices and more advanced connected software applications within the Internet of Things, autonomous vehicles and cloud computing spaces. Bank of America recently took a deep dive into 5G, and these seven stocks are among its top 5G stocks to buy.
Verizon Communications (VZ)
Verizon Communications is one of the largest telecom providers offering 5G service to its customers. Analyst David Barden says Verizon plans to increase its number of 5G cell sites by 500% in 2020 and deploy its 5G network in 30 new cities by the end of the year. In addition to its 5G growth opportunities, Verizon has an extremely defensible subscriber base and one of the strongest balance sheets in the industry, Barden says. Verizon also pays a sizable 4.5% dividend. Bank of America has a "buy" rating and $64 price target for VZ stock.
T-Mobile US (TMUS)
Telecom giant T-Mobile closed its Sprint buyout on April 1, and Barden says T-Mobile will ultimately be the first wireless carrier to launch a "real 5G nationwide network." In addition, Barden says the integration of Sprint gives T-Mobile a spectrum advantage that could drive subscriber growth and potentially an upside to consensus analyst estimates. The Sprint deal was certainly pricey, but Barden says T-Mobile should be able to quickly deleverage its balance sheet, opening the door to potential shareholder-friendly capital allocation down the line. Bank of America has a "buy" rating and $110 price target for TMUS stock.
In addition to network providers, device makers like Apple will also benefit from 5G upgrades. Apple is expected to roll out its first 5G iPhone in the second half of 2020, and analysts expect millions of 5G iPhone, Apple Watch and iPad upgrades over the next few years. Analyst Wamsi Mohan says the 5G iPhone product cycle will boost sales and expand Apple's earnings multiple. Looking ahead to 2021, Mohan projects that Apple's hardware revenue will jump 20% because of 5G iPhones and wearables. Bank of America has a "buy" rating and $390 price target for AAPL stock.
Nokia Corp. (NOK)
Nokia is one of the world's top infrastructure equipment suppliers to the global wireless industry. Analyst Tal Liani says Nokia's revenue mix shift toward 5G equipment should help improve margins. In addition, Liani says cost cutting and a smaller footprint in China should help boost profitability in the near term. Once demand begins to improve in the second half of 2020, Liani says Nokia's attractive valuation should start to stand out as 5G investments ramp up through 2022. Bank of America has a "buy" rating and $4.80 price target for NOK stock.
Broadcom is a diversified semiconductor company that produces chips for the wireless communication, enterprise storage and industrial end markets. Broadcom is also one of the major chip suppliers for 5G base stations. Analyst Vivek Arya says Broadcom will have 40% content growth in 5G iPhones compared with 4G models. Arya says Broadcom's free cash flow margin of greater than 40% provides plenty of wiggle room to support both its 4.1% dividend and his target of 10.6% 2021 earnings per share growth. Bank of America has a "buy" rating and $360 price target for AVGO stock.
Analog Devices (ADI)
Arya says semiconductor stock Analog Devices is the "dominant player" in 5G radio signal chain technology with roughly a 70% market share. He estimates that the company will have about four times the content opportunity in the 5G era than it did in the 4G years. Arya says Analog's communications sales bottomed in the first quarter, and the 5G boom sets up a multiyear growth phase that will lead to double-digit communications sales growth over the next several years, well above typical growth rates in the analog industry. Bank of America has a "buy" rating and $140 price target for ADI stock.
Qualcomm is a semiconductor leader that supplies and collects royalties on wireless devices and infrastructure. Liani says Qualcomm is one of the "most important players in 5G development" because of both its semiconductor and licensing businesses. Qualcomm is well-positioned for revenue and earnings growth as it sells more 5G chips at higher-margin prices in the next several years. Liani estimates that 5G modem and mmWave connectivity solutions will contribute between $5 billion and $10 billion to the company's semiconductor revenue by fiscal 2022. Bank of America has a "buy" rating and $115 price target for QCOM stock.
Analysts like these 5G stocks:
-- Verizon Communications (VZ)
-- T-Mobile US (TMUS)
-- Apple (AAPL)
-- Nokia Corp. (NOK)
-- Broadcom (AVGO)
-- Analog Devices (ADI)
-- Qualcomm (QCOM)
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