The Covid-19 pandemic is fast making many tech stocks the cornerstone of most long-term portfolios. But it’s not the only one. We have yet another important development that investors need to keep in mind as they research tech companies, i.e. the deployment of 5G, or the fifth generation of wireless networks.
Regular InvestorPlace.com readers are familiar with the expected benefits and the range of applications of 5G. For example, the new technology will be at the center of the infrastructure that will be used to develop smart cities. This new cellular standard will also lower the lag or latency of mobile applications, which should have a positive impact on the development of virtual reality/augmented reality (VR/AR), online gaming, healthcare and self-driving cars.
According to recent research led by Kristiina Valtanen of VTT Technical Research Centre of Finland, “New 5th generation wireless network technologies (5G) are foreseen to transform industries through wireless services provided at gigabit speeds, millisecond latency, support for wide range of novel applications connecting Internet-of-Things (IoT) devices and objects.” IoT is also an emerging investment theme that frequently overlaps with 5G.
Another piece of research by Amitabha Ghosh of Nokia Bell Labs, Naperville, IL summarizes, “5G provides a highly flexible and scalable network technology for connecting everyone and everything, everywhere.” Put another way, a disruptive technology is about to enter our lives in the coming months.
5G is expected to become of the biggest growth drivers in the tech world. With all that in mind, here are seven stocks that may help you build a long-term portfolio:
- Apple (NASDAQ:AAPL)
- Ciena (NYSE:CIEN)
- Defiance Next Gen Connectivity ETF (NYSEARCA:FIVG)
- First Trust Indxx NextG ETF (NASDAQ:NXTG)
- iShares PHLX Semiconductor ETF (NASDAQ:SOXX)
- Qualcomm (NASDAQ:QCOM)
- Verizon (NYSE:VZ)
Tech Stocks: Apple (AAPL)
Year-to-date (YTD): Up 49%
Dividend Yield: 0.8%
AAPL stock has been one of this year’s winners, rallying to a recent new all-time high following its most recent Q3 earnings report. The tech giant is expected to roll out its first 5G iPhone in the coming months. And within a few years, there will likely be millions of 5G iPhone, Apple Watch and iPad upgrades worldwide. As a result of the 5G iPhone product cycle, the company’s revenue and earnings multiple should get a boost.
In addition to opportunities presented by 5G, the Cuppertino, California-based group will potentially expand into other areas that may be offered by the new “stay-at-home, work-from-home” trend, such as telehealth or video communications and networking.
I regard Apple as the ultimate company that is focused on creating value for all stakeholders as well as shareholders. Any technology company that wants to innovate and become a positive disruptor needs a healthy dose of public trust, forward-looking management and a strong balance sheet — all of which Apple has.
As we get closer to the launch of a new generation of iPhones and other Apple products, the quarterly report provided key clues as to why the recent rally can potentially continue in the rest of the year. Potential investors should buy the dips in AAPL stock
YTD: Up 41%
Dividend Yield: N/A
Ciena provides fiber optic networks that critical to the efficient functioning of 5G networks. These networks can offer unlimited bandwidth. As Ciena’s management highlights “[5G’s] formidable network performance goals are heavily predicated on the availability of fiber, and lots of it, to cell sites.” And that is why the Street is bullish on CIEN stock.
As an optical transport vendor, the company offers backhaul for wireless networks. According to Ciena Vice President of portfolio marketing Rebecca Prudhomme, “from the point of the device to the radio tower — that piece is wireless. After that, all traffic has to be carried across the wireline network. Our Ethernet platforms support more than 50% of the cell towers in the U.S. We’ve got this pedigree of playing in the wireline backhaul piece of the mobile network.”
Earlier in the year, the company released a number of 5G products, including 5G-optimized routers, software, and transport networks. Analysts also expect the company to gain increasing market share outside the U.S., especially in Europe. If you are looking for a tech stock that will likely be the backbone of 5G, then CIEN should be on your watchlist.
Tech Stocks: Defiance Next Gen Connectivity ETF (FIVG)
YTD: Up 13%
Dividend Yield: 1%
Expense Ratio: 0.3% per year, or $30 on a $10,000 investment
The Defiance Next Gen Connectivity ETF follows the BlueStar Global 5G Communications Index whose components are reviewed semi-annually. The fund, which was launched in March 2019, holds 78 globally-listed stocks across all market capitalizations.
The companies in the fund range from semiconductor names and telecom gear makers to cloud computing firms, satellite-based communications, new radio technology and more. The top three holdings int he ETF are Qualcomm, Ericsson (NASDAQ:ERIC), and NXP Semiconductors (NASDAQ:NXPI). They make up over 15% of net assets, which total over $400 million.
If you are looking for tech stocks that are likely to benefit from the upcoming 5G revolution, then FIVG may offer a relatively cost-effective means of gaining exposure to the developments in the field. The share price has recently hit an all time high and is currently flirting with $30.
Tech Stocks: First Trust Indxx NextG ETF (NXTG)
YTD: Up 8%
Dividend Yield: 1.3%
Expense Ratio: 0.7%
The First Trust Indxx NextG ETF was formerly known as the First Trust Nasdaq Smartphone Index Fund. The ETF follows the Indxx 5G & NextG Thematic Index.
The fund’s focus is on companies that specialize on the development and application of 5G and next generation digital cellular technologies as they emerge. All eligible companies classified into one of two sub-themes based on their exposure to 5G or next generation technology, i.e., either “5G Infrastructure & Hardware” or “Telecommunications Service Providers.”
The fund, which owns 100 stocks, has a diverse global exposure. U.S.-based companies constitute about 40% of the fund, followed by Japan, India, and China.
5G technology is still in its infancy. But analysts agree it will revolutionize how we communicate, live and work globally. The NXTG may give you an easy entry point to the field. Like FIVG, the share price of NXTG has also recently hit an all time high and is shy of $60.
iShares PHLX Semiconductor ETF (SOXX)
YTD: Up 16.5%
Dividend Yield: 1.0%
Expense Ratio: 0.46%
As one of the largest semiconductor ETFs, the iShares PHLX Semiconductor ETF is a cap-weighted fund, tilting toward the largest semiconductor stocks. Its benchmark index is the PHLX Semiconductor Sector Index.
Semiconductors are the brains inside electronic devices. Chips are used in a wide range of products in computing, telecommunications, gaming, transportation, military systems and healthcare. They are typically behind technological innovation. As a result, shares of semiconductor companies usually act as a bellwether for the technology sector as a whole.
As new frontiers in technology — such as the internet of things, artificial intelligence (AI), autonomous driving and 5G — are developed, the Street remains bullish on the future of the semiconductor industry.
The ETF currently has 30 holdings. Nvidia (NASDAQ:NVDA), Qualcomm, Broadcom (NASDXAQ:AVGO) and Texas Instruments (NASDAQ:TXN) are its largest holdings, making up for over 30% of the fund’s roster. Its beta of 1.24 means that SOXX is more volatile than the broader market. Therefore short-term traders may want to exercise caution as prices tend to be choppy.
However, long-term investors may regard any dip in price as opportunity to buy into the fund.
Tech Stocks: Qualcomm (QCOM)
YTD: Up 24%
Dividend Yield: 2.2%
Qualcomm is the largest maker of chips for smartphones and wireless modems. Its chipsets account for about two-thirds of its total revenue. QCOM stock’s second-highest source of revenue is mobile-phone royalties and licensing. Its patent-licensing division collects royalties from 3G and 4G technologies that the chip giant helped invent. Its portfolio of wireless patents is the largest globally.
Wall Street believes that Qualcomm will play a dominant and early role in 5G, replicating its success with 3G and 4G mobile networks. If analysts are correct, QCOM stock is a good pick for long-term investors. The company is likely to provide a significant part of the intellectual property that will be used to develop 5G communications standards. Increased sales at higher margins will likely translate into revenue and earnings growth for the company.
Any dip in price, especially toward the $100-level should provide a good entry point for investors.
YTD: Down -7%
Dividend Yield: 4.2%
Verizon Communications is one of the largest telecom providers that offers offering service to customers in the U.S. According to the telecom giant, “The connectivity benefits of 5G are expected to make businesses more efficient and give consumers access to more information faster than ever before.” The number of cities that Verizon offers 5G network is expected to grow substantially in the coming months.
Furthermore, the group has a strong subscriber base. Even in the event of a prolonged economic downturn, most people are likely to keep their monthly subscriptions on the network. It also has a robust balance sheet.
Verizon stock is one of the handful tech names that are down so far in 2020. Put another way, I do not think the market has yet priced in the full potential that the businesses has. I’d consider buying Verizon shares for the long-term. Its juicy dividend yield is also enticing, especially for passive-income-seeking investors.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, including a Ph.D. degree, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan did not hold a position in any of the aforementioned securities.