Last Updated on August 27, 2020 by Henry John
5g is a big deal, for context, “the global 5g infrastructure market alone was valued at USD$371.4 million and is projected to reach USD58.174 billion by 2025, growing at a CAGR of 95.8% from 2018 to 2025″.
That’s almost a 100% expected growth for just five years. It’s no surprise that the 5g infrastructure market is a hot cake for growth seeking investors.
I’ve previously explained why Ericsson is the number 1 5g stock for stock investors who want to have a piece of the 5g infrastructure market growth.
The top four 5g infrastructure companies have an overwhelming share of the market, with Huawei previously holding the leading position.
However, since the anti-Huawei campaign by the US government, Huawei has fallen down the ladder and Ericsson has taken over the lead in the global market.
On a year-to-date basis, Ericsson has grown by more than 30% this year, in spite of the Covid-19 market crash, and beat expectations both for Earnings per Share and revenue for Q2-2020 (it’s latest quarter).
Considering the share number of 5g contracts Ericsson has and its current market position globally, it’s a no brainer to bet on it for the long-term.
Nonetheless, a series of unexpected events can see Ericsson lose its glow, specifically its market position and the bet turns bad.
Therefore, hedging the Ericsson stock play will help reduce risk, in case of unexpected circumstances that may send Ericsson’s stock price down. I can do you one better; there’s a way to hedge the ERIC play, potentially increasing returns and not get screwed doubly.
Ride along as I break this down for you.
The 5g infrastructure market has a 99% chance of turning out as big as they say, I don’t want to use the word 100%. You know, I know and every tech stock investor knows that 5g is a done deal, rolling out the technology is only a matter of when.
As such, in the next 2 to 3 years the 5g infrastructure market which is the bedrock of 5g technology is expected to grow rapidly. Putting money into this market, is putting money into a guaranteed growth market.
Hedging ERIC play with NOK
In the 5g market, ERIC is number one, however, Nokia (NASDQ: NOK) is a strong number 2 and has had a really good return this year so far. Similar to Ericsson, Nokia has grown almost 30% YTD.
There’s a great advantage that comes with being a strong number 2, Ericsson benefited from such an advantage when Huawei fell.
What if something big happens to Ericsson and they lose their market position and share? Nokia will benefit from the strong number 2 advantage, moreover, Nokia is strongly pushing to take Ericsson’s spot.
Ericsson’s loss could become Nokia’s gain and holding both stock will be to your profit, even if reverse becomes the case.
Three scenarios could possibly play out give the history of Network Infrastructure Market:
- Ericsson lose some market share and a strong Nokia picks most of those share up
- Nokia lose some market share and a strong Ericsson picks most of those share up
- Both gain more market share and thrive
Of all three scenarios the third is most likely to play out, with the second scenario being the next likely. But if push comes to shove, and Ericsson loses out, your ERIC bet is hedged. Either way you will come out on top.
There is absolutely no rule that says you must to choose either Ericsson or Nokia. Both are great stocks for a play in the 5g infrastructure market, so why not own them both and reduce risks.
Good investors speculates on good stocks, however great investors hedge their plays.
Are you good or are you great?
While you decide who you are, find time to consider this question: If Trump loses the coming election, will it change US anti-Huawei stance?
Hit me using the contact form or write down a comment down below if you have any question or suggestion regarding this play. I’d be more than happy to respond.
Wish you good returns in the market, if wishes are all you need.