Many tech investors are optimistic about the growth potential of fifth generation (5G) networks, which could transfer data up to 100 times faster than 4G networks. These faster speeds could drive new sales of network hardware, faster phones, and innovative new devices and services on the Internet of Things.
Earlier this month, I highlighted a few 5G stocks that will reward patient investors with decent dividends. Today, I want to take a closer look at three 5G stocks that are also cheap relative to their potential for growth: China Mobile (NYSE: CHL), Ericsson (NASDAQ: ERIC), and Broadcom (NASDAQ: AVGO). Let’s take a closer look at these tech stocks.
1. China Mobile
China Mobile, the Middle Kingdom’s largest telecommunications company, provided service to 946.2 million wireless subscribers in September, up 0.4% from last year. Its 4G customer base grew 3% to 769.5 million, with its 5G customer base – which did not exist a year ago – reaching 113.6 million.
In the first nine months of 2020, China Mobile’s operating revenue grew 1.4% year-over-year, but profit fell 0.3% due to rising costs 5G infrastructure. For the full year, analysts expect its revenue and profits to grow 7% and 6%, respectively, as it locks in higher-value 5G subscribers in the fourth quarter.
China Mobile is often viewed as a safe stock for three simple reasons: it’s the market leader, it’s a state-owned enterprise, and it pays a decent semi-annual dividend, which typically stays between 3% and 5% on the basis of its annual profit.
However, China Mobile’s stock has fallen 30% this year as US regulators have repeatedly threatened to delist Chinese stocks listed in the US over their alleged ties to the Chinese government. The Trump administration’s latest executive order, which goes into effect Jan.11, could prevent U.S. investors from buying shares in China Mobile and 30 other companies.
As a result, China Mobile is trading at just eight times earnings forward. The discount might be justified, but investors should remember President Donald Trump’s previous executive orders against TikTok and WeChat, and the Biden administration could quickly reverse the order. Therefore, China Mobile stock could rebound quickly if these regulatory headwinds dissipate.
Swedish telecommunications giant Ericsson controlled 14% of the global telecommunications equipment market last year, according to Dell’Oro Group. He placed third behind Huaweithe 27% share of Nokiaof (NYSE: NOK) 16% share.
But Ericsson is growing faster than Nokia and doesn’t face business blacklists and sanctions like Huawei. Ericsson also skillfully navigated the US-China trade war by retaining its 5G contracts in China, even after Nokia lost several large customers (including China Mobile) while securing new 5G contracts with other customers who had severed their ties. with Huawei.
As of this writing, Ericsson has secured 117 5G trade deals around the world. Analysts expect Ericsson’s growing presence in the 5G market, along with stable sales of its other network devices and services, to increase revenue and profits by 7% and 26%, respectively, l ‘next year.
Ericsson stock has already risen nearly 40% this year thanks to optimistic expectations for its 5G business, but its stock still looks cheap with 17 times expected earnings. Ericsson is also paying a decent forward yield of 1.4%. Like China Mobile, it pays a semi-annual dividend, which is tied to its earnings growth.
Broadcom sells a wide range of wireless chips for the data center, network hardware, storage solutions, broadband, wireless and industrial markets. It also provides infrastructure software and security services.
Broadcom generated a fifth of its revenue from Apple (NASDAQ: AAPL) Last year. It also signed a new $ 15 billion contract with Apple in early 2020 to supply wireless chips to the iPhone maker for the next three and a half years. This close relationship indicates that robust sales of the iPhone 12 will likely boost Broadcom sales in the coming quarters.
The pandemic disrupted sales of Broadcom’s network and broadband chips earlier this year. But it made up for that slowdown with growth in its software business, and its chip sales have stabilized over the past two quarters as cloud and telecom customers resumed their infrastructure upgrades.
On last quarter’s conference call in September, CEO Hock Tan predicted that Broadcom would begin to “benefit from the 5G transition and new product ramps later this year.” In other words, infrastructure customers should start buying more chips for their 5G networks, and manufacturers of 5G devices will install more wireless chips in their products.
Wall Street expects Broadcom’s revenue and profits to grow 9% and 16%, respectively, as it rides those favorable winds that accelerate next year. That’s an impressive growth rate for a stock that trades at just 15 times earnings forward, and its quarterly dividend shows an impressive forward yield of 3.4%.