Let’s face it: 5G is here already. The only remaining questions are, how long until it reaches full coverage, and how long until every smartphone and wireless user is switched over to the new networks. Those are serious questions, though, and investors interested in 5G will have their work cut out for them: locating stocks, divining the connection with the 5G rollout, and working out the right time to buy in.
Wall Street’s analysts have been getting started on that task, reviewing the tech sector specifically with 5G connections in sight. The pros point out that gains from 5G will be spread broadly across the tech world, bringing gains to companies large and small alike in a variety of hi-tech sectors, including chip making, piezoelectric components, and the vital radio frequency connectors.
Using TipRanks database, we pinpointed three stocks that the analysts believe will bring upwards of 20% gains in the coming year, riding on the crest of 5G’s wave.
Akoustis Technologies (AKTS)
Akoustis designs and manufactures piezoelectric components for BAW (bulk acoustic wave) filters – a lower cost solution for high-end radio frequency filters. These devices can be used a range of applications up to 6 Ghz – in other words, directly into the wavebands needed for 5G expansion.
Akoustis announced in August that it has received another design contract for XBAW filters in 5G small cell infrastructure networks. The contract is with an existing customer, and represents the company’s third such win – and its continuing movement into the 5G hardware supply chain. The company also reports that at least 5 other existing customers have expressed interest in similar XBAW filters.
The quarter ending June 30 also ended Akoustis’ fiscal year, and the company reported that during the FY20 it added 14 new RF filters to its catalog of products. The new products make Akoustis a one-stop shop for customers looking to build out 5G network hardware.
5-star Craig-Hallum analyst Anthony Stoss is bullish on Akoustis’ ability to forge a path forward. He writes, “The company hit all their June quarter milestones and started ramping shipments of their 5.2/5.6 GHz Wi-Fi filters for tri-band Wi-Fi at the end of the June quarter which should accelerate throughout the September quarter… Additionally, AKTS is seeing growing demand from their existing 5G small cell customer as 5G demand in China accelerates… We look for 5G infrastructure to drive revenues higher and think by late next year it could represent roughly 2/3rd of revenue for the company.”
Accordingly, Stoss rates AKTS a Buy, and his $12 price target implies a 55% upside potential in the next 12 months. (To watch Stoss’ track record, click here)
Overall, the analyst consensus rating on AKTS shares is a Strong Buy, based on a unanimous 4 positive reviews. Shares are priced at $7.72 and the $11 average price target suggests it has a 42% potential upside this year. (See AKTS stock analysis on TipRanks)
RF Industries (RFIL)
Next on our list is RF Industries, another player in the radio frequency device market. The company works in all stages of the RF niche, designing, manufacturing, and distributing radio frequency coaxial connectors for antenna devices, computers, computer networks, radio telecom devices, and test instruments. The company’s products are vital in the wireless digital data transmission field, making their connection to the growth of 5G immediately clear.
RF Industries makes wireless connections possible, providing the key components of radio frequency transmission devices. The company likes to say they create ‘wires’ for wireless – it’s a bon mot, but it does describe RF Industries’ role in wireless networks. The company’s products are in high demand as new hardware is rolled out to introduce and expand 5G networks.
Covering the stock for B. Riley FBR, analyst Josh Nichols noted, "We continue to believe that the long-term 5G densification opportunity remains intact, albeit likely with an increasing shift into F21 [...] While COVID-19 has been a significant near-term headwind to the company’s passive electronic component sales, the business is showing signs of improvement with increased interaction across the company’s customer base. To this point, monthly orders have seen steady improvement over the past several months, and while not back to pre-COVID levels, we believe F4Q revenue will return to growth on a Q/Q basis that accelerates in FY21. Moreover, RFIL’s variable cost structure has enabled the company to remain profitable in an exceptionally challenging operating environment."
To this end, Nichols rates RFIL a Buy and puts a $6.25 price target on the stock, suggesting a 50% upside over the coming year from the share price of $4.17. Nichols’ review is the only one currently on record for RF Industries. (To watch Nichols’ track record, click here)
Semtech Corporation (SMTC)
Last on today’s list, Semtech is a maker of semiconductor chips for integrated and discrete circuits. The company’s chips are used by a variety of customers, in the aerospace, automotive, computer, and telecom industries.
In its most recent quarterly report, Semtech showed revenues and earnings both above the forecasts. At the top line, revenue came in at $147.3 million, for an 8% sequential gain and 5% year-over-year growth. Earnings slipped in 1H20, as with many other companies during the coronavirus crisis, but SMTC remained profitable and reported 43 cents per share, up 22% from the previous quarter and 13% yoy.
The quarterly results were bolstered by strong sales growth in two segments: hyperscale data centers and 5G wireless bases stations. The 5G market is a voracious consumer of semiconductor chips; the new wireless networks are not compatible with older 4G equipment, and the telecom industry, to keep 5G rolling out, must continue building out new hardware. And that means new silicon chips to regulate the electronic innards. Semtech is a natural winner here.
Gary Mobley, a 5-star analyst with Wells Fargo, likes what he sees in Semtech. He says of the company, “SMTC’s strong franchise in CDRs in PON access, 5G backhaul and datacenter end markets is driving continued strong backlog as these applications experience strength from our work/learn/entertainat-home society and the strains this is creating for DC and access networks.”
Mobley rates SMTC an Overweight (i.e. Buy), and his $67 price target suggests a 20% one-year upside for the stock. (To watch Mobley’s track record, click here.)
Overall, Semtech has a Strong Buy rating from the analyst consensus, with 8 reviewers rating the stock a Buy and 2 giving it a Hold. SMTC shares are trading for $55.97 and have a $66.67 average price target, in line with Mobley’s and indicating for 19% growth. (See SMTC 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.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.