Last Updated on November 17, 2020 by Henry John
2021 is the year for 5G. The first full year where the powers of 5G technology will be unleashed, the powers that will give life to many life-changing technologies.
5G has been in the womb, under development for years, and to finally see it at work is a thing of joy, both as an investor and a tech enthusiast.
Its hours after Apple wrapped up its iPhone 12 event, where it announced four new iPhone 12 models, all of which support 5G networks. And all I can think of is 5G and 2021.
Just after the Apple iPhone 12 event, Verizon tweeted “We’re turning on 5G Nationwide. And bringing the unprecedented performance of 5G Ultra Wideband to more and more cities. This is the 5G America’s been waiting for.”
Of course, many phone makers, including other major players like Samsung and Huawei, have released their versions of 5G phones long before now. However, there’s something about Apple’s announcement that just stands out.
It’s Apple for dollars’ sake.
Nonetheless, 5G is bigger than Apple (NASDAQ: APPL).
According to Allied Market Research, “The global 5g technology market is anticipated to be at $5.53 billion in 2020, and is projected to reach $667.90 billion 2026, registering a CAGR of 122.3% from 2021 to 2026.”
From all major indicators, the 5G market is anticipated to start growing rapidly from 2021. And as an investor, how can you best ride the 5G wave?
Check out this article on five (5) strategic ways to invest in 5G.
2020 and the pandemic in many ways helped fasten the transition to 5G networks, as businesses and consumers were forced to go online. Consumers and businesses that otherwise wouldn’t have moved online by now.
As more consumers/businesses go online, so does the demand for faster internet connection and lower level of latency. And with increasing demand, comes an increasing need for 5G technologies.
Currently, there is more demand for technologies powered by 5g than it is available in the market. Brace yourself, ladies and gents, we are in for a technological revolution, the kind that brings rapid growth for companies that are positioned to meet demands.
There are many ways to play 5G, the major ways which are the 5G infrastructure providers’ play, 5G chipmakers’ play, 5G device manufacturers’ play, and the 5G network providers’ play.
Looking at 5G from all major angles, here are the best 5G stocks for 2021:
1. Qualcomm (NASDAQ: QCOM)
One of the big 5g winners in 2021 will most definitely be 5g chip makers. And Qualcomm has a major hold on the 5g chipset market, especially for smartphones.
The 5g chipset that was valued at USD 1.96 billion in 2020 and is project to reach USD 21.87 billion by 2026, growing at a CAGR of 44.1% from 2021 to 2026.
With 5G rolling out fully in 2021, many 5g device manufacturers will significantly increase demand for 5g chips as they push to get their 5g products into the market. There’s already an increasing demand for faster internet, lower power consumption, and less level of latency; all of which 5g was built to checkmate.
The 5G market is ripe. And smart device manufacturers that want to play ball, will need to increase their demands for 5g chips significantly in 2021. Common sense, period.
And Qualcomm is ready to rock and roll.
Check out this article on the top 5g chip makers.
The chipmaker has 5g chips ready to be shipped out on demand. They have chips like the Snapdragon 865+ 5G Mobile Platform for Smartphones, Snapdragon 8cx Gen 2 5G Compute Platform for PCs, and the Snapdragon Automotive 5G Platform, its first automotive-grade 5G platform.
Of course, for Qualcomm in 2021, its bread will still be buttered majorly from the 5g smartphone market, where it has existing customers like Samsung, Xiaomi, OPPO, ASUS, OnePlus, Nokia, Motorola, ZTE, Nubia, Lenovo, LG, and Sony; all of which are using Qualcomm’s Snapdragon 5g chip for their 5g phones.
And there’s more to Qualcomm in the 5g space other than its strong position in the chip market if you take a long-term view (beyond 2021). Particularly is its drive in the potentially huge 5g Open RAN market.
Qualcomm’s 5G RAN platform that was initially launched in 2018, is being used by major Network Infrastructure providers like Rakuten, Samsung, Airspan, Altiostar, Baicells, Fujitsu, Radisys, NEC, Sercomm, and Corning.
I expect Qualcomm’s stock price to grow at least 50% next year, and I would be shocked if it ends 2021 below $200 per share. It’s currently up over 50% YTD and has a P/E ratio of 55.62.
2. Ericsson (NASDAQ: ERIC)
Ericsson is the clear leader in the 5G infrastructure market, thanks to the US government putting pressure on Huawei and limiting the Chinese company’s ability to participate competitively in the global 5g infrastructure market.
Its lead in the market has seen it secured over 111 5g commercial agreement and has publicly announced 60 contracts, all of which will translate to more revenue from equipment sales in 2021 for Ericsson.
The global 5G infrastructure market size was valued at USD 1.9 billion in 2019 and is expected to grow at a Compound Annual Growth Rate (CAGR) of 106.4% from 2020 to 2027.
As network carriers race to roll-out 5g network in 2021, Ericsson is set to rank in huge revenue supplying equipment to the numerous major carriers it has on its books.
Ericsson currently has contracts with major carriers such as AT&T, SoftBank, Sprint, T-Mobile, Verizon, China Mobile, Etisalat, Deutsche Telekom, China Telecom, SK Telecom, MTN, DiGi, DirecTV, BT, and Orange France to mention but a few.
There’s no hiding that Ericsson is my favorite 5G infrastructure stock for 2021. The company is expanding its reach after acquiring Cradlepoint (the market-leader for Wireless Edge WAN solution). This singular move puts Ericsson in a position to dominate the 5g Enterprise market.
According to Verified Market Research, the Global 5G Enterprise Market was valued at USD 920 million in 2018 and is projected to reach USD 29.12 billion by 2026, growing at a CAGR of 54.00% from 2019 to 2026.
Cradlepoint is a global leader in cloud-based network solutions for connecting people, places, and things over wired and wireless broadband. Its subscription-based model combines cloud-delivered software with hardware endpoints, support, and training. And its 2019 sales, which stood at SEK 1.2 billion, came in with a gross margin of 61%.
However, Cradlepoint is yet to generate positive operating income, and as such Ericsson’s acquisition will see it take a 1% hit to its operating margin for the next two fiscal years. But in the long-term, Ericsson expects Cradlepoint to contribute to operating cash-flow starting in 2022.
Check out this article on ‘How to Hedge the ERIC 5g Infrastructure Play’.
I expect Ericsson’s stock price to grow at least 80% next year, and I would be shocked if it ends 2021 below $20 per share.
3. Broadcom (NASDAQ:AVGO)
The 5G revolution seemed to have officially kicked off after the iPhone 12 launch event. Network carriers like Verizon are following Apple’s lead. And amongst the top markets to benefit from the 5G revolution is the IoT market.
Internet of things have long craved for the speed and security of 5G to really take off. And if there’s ever going to be a year for IoT devices to heavily begin to penetrate the market, it’s going to be 2021 (the year of 5G).
According to Statista, “by 2021, the internet of things and analytics market is expected to be worth 520 billion U.S. dollars”. That’s a huge chunk of money.
Amazon and Alphabet are expected to dominate the IoT market with their ecosystem of smart devices. And it will make some sense to play Amazon and Alphabet for 5G IoT market in 2021. However, these companies have business well spread that their IoT segment is really a smaller part of their business.
And this is where companies like Broadcom comes in. The expected increase in demand for connected devices powered by 5G in 2021 will drive growth for the IoT chip market, a market where Broadcom is heavily involved in.
In January 2020, Broadcom signed a $15 billion deal with Apple to supply chips for the next three years, after it generated about 20% of its 2019 sales from Apple.
Broadcom produces a wide range of semiconductors for various industries and sells its chips to the wireless, broadband, networking, data center, and industrial markets, all of which are expected to grow significantly next year as a result of 5G.
On the downside, Broadcom reliant on Apple (NASDAQ:APPL) is a quite a risk. However, that’s nothing compared to Skyworks Solutions which relies on Apple for 50% of its revenue.
It’s a good thing that Broadcom is better diversified than Skyworks Solutions, and it was either Broadcom or Skyworks Solutions for this list. Nonetheless, there’s nothing wrong with playing both Skyworks Solutions and Broadcom.
Broadcom offers a 3.4% dividend and is even planning on increasing its dividend payout by around 10% to 15%. And over the past five years, the company has maintained a solid growth, growing over 200% in that time frame, which is really good. I like companies that have a solid growth track record.
Apple has noted that its smartphone sales are levelling, however 5g chips are pricier and have a larger margins. As such even with a normal demand from Apple, Broadcom should be able to increase its earnings significantly next year.
Not to forget that Apple also unveiled a mini smart speaker along with four iPhones during the iPhone 12 event. This is a good sign that 2021 will be a lot more than iPhone for Apple, and that it’s doubling down on the IoT market. Broadcom should be smiling.
And since it’s not all Apple for Broadcom, the company can also increase revenues and earnings from increase demand in the 5G IoT market. Even after selling ‘certain assets and manufacturing rights’ connected to its IoT products to Synaptics mid-2020, the company is still a strong 5G IoT play.
I expect Broadcom’s stock price to grow at least 30% next year, and I would be shocked if it ends 2021 below $450 per share.