5G, first introduced two years ago, is expanding past its initial phases and has reached the edge of a great boom. There are 105 5G networks worldwide, and device manufacturers have released over 160 5G smartphones, tablets, and other products onto the commercial market – and there are over 230 million 5G subscribers worldwide. The new tech is here, and it’s ready to expand.
That expansion will bring a series of benefits to wireless users. The higher speeds on the networks have gotten the most attention, but 5G will also over 10 times higher data transfer rates, one-tenth the network latency, and far higher connection density capabilities. That last may turn out to be the key to 5G’s long-term success, as related technologies like IoT, autonomous cars, and smart homes multiply the connected devices in our lives.
The expansion and benefits of 5G have attracted attention from some of Wall Street’s high-rated analysts; specifically, it has directed the analysts’ attention to the companies that will build and maintain 5G as it expands. These are stocks that are sure to benefit from the network tech, and 5-star analysts say that now – before 5G becomes ubiquitous – is the time to buy in.
And with that in mind, we used TipRanks database to pinpoint two top 5G picks from top analysts. These are stocks with Buy ratings and recent share appreciation. Let’s find out what else makes them leaders in the 5G stock boom.
Ceva, Inc. (CEVA)
The first company on our list, Ceva, is part of the semiconductor industry. The company is a developer of digital signal processing (DSP) technology that is essential to the proper functioning of wireless devices in the consumer, industrial, mobile, and IoT niches. Ceva’s DSP architecture is also becoming an increasingly important feature of 5G capability, and the company has, in recent years, teamed up with handset maker Nokia to collaborate on 5G technology.
Ceva saw strong gains in both 1Q20 and 2Q20 as EPS beat the forecasts and showed improvements year-over-year. Revenues in Q2 were $23.6 million, up 28% from Q2 2019. Ceva’s balance sheet is positive, with $157 million cash and cash equivalents and no outstanding debt.
Ceva’s share performance has been strong, too. The stock has outperformed the broader markets, and, despite some recent losses, is up 38% year-to-date.
Gus Richard, a 5-star analyst with Northland Securities, sees several factors working together to lift CEVA in coming months. He notes the company’s business model, licensing intellectual property and collecting on royalties, and sees its 5G exposure as a net plus.
“With the banning of Huawei CEVA’s customer, ZTE, is getting more of the 5G infrastructure business in China and we expect this revenue to increase from $1M in Q2 to $2M to $2.5M in Q3. In addition, we expect NOK to start to ramp next year. Finally, we expect a surge in WiFi, Bluetooth including smart home appliances, such as smart TV, smart speaker, connected lightbulbs, thermostat, and wearables to drive royalty revenue in the coming years.”
As a result, Richard upgraded CEVA shares to Outperform (i.e. Buy), and his $48 price target implies room for 29% upside growth in the coming year. (To watch Richard’s track record, click here)
Overall, with 3 Buy and 2 Hold reviews given recently, CEVA gets a Moderate Buy rating from the analyst consensus. The stock has an average price target of $48.25, in line with Richard’s and also indicating a ~29% upside potential (See Ceva stock analysis on TipRanks)
Skyworks Solutions (SWKS)
This mid-cap semiconductor chip maker is major part of Apple’s iPhone supply line. In fact, Skyworks saw 51% of its 2019 revenue from sales to Apple. That Apple exposure, however, makes the connection to 5G clear; Apple is expected to release the new 5G capable iPhone 12 series in the next few weeks, and by some estimates, the device maker can expected up to one-third of its 900 million-strong installed user base to switch to the new devices in the next 18 months. That’s a whole lot chip sales for Skyworks.
The company is heavily invested in IoT chips, and its MIMI technology is essential to 5G small cell units, and important part of the network’s infrastructure.
Skyworks shares have fully recovered from the mid-winter swoon, and are up 14% year-to-date. Earnings remained positive throughout the height of the corona crisis, and are expected to start turning upwards in the next quarterly report.
Rosenblatt’s Kevin Cassidy, another analyst rated 5-stars by TipRanks, was impressed enough by Skyworks’ performance to initiate coverage of the stock with a Buy rating and a $160 price target. His target indicates a potential upside of 17% for the stock. (To watch Cassidy’s track record, click here)
Supporting his stance, Cassidy says, “Skyworks is well positioned to benefit from the increasing radio frequency front-end content in 5G enabled devices. We are modeling above semiconductor industry revenue growth of 10% over the next two years. The company can leverage its multiple generations of cellular RF technology leadership and smartphone OEM relationship to expand its customer base. The increasing RF front-end design complexity will continue the company’s long-term margin expansion, in our view. Improving profitability, pristine balance sheet and shareholder friendly policy makes SWKS an attractive Buy in front of the 5th generation of communications."
All in all, the Moderate Buy analyst consensus rating on Skyworks is based on 15 Buy reviews and 7 Holds, set in the past two months. The shares are selling for $136.35 and their average price target of $148.58 suggests a one-year upside of 10%. (See Skyworks’ stock analysis at 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.