The 5G revolution is just getting started, and growth opportunities in the space combined with explosive gains for companies with relatively high short interest has put Nokia stock in the spotlight. While next-gen networking catalysts and the volatile nature of today's market suggest Nokia might have the potential to deliver big returns, there are probably better buys.
To get of a survey of companies that look primed to benefit from 5G, we asked three Motley Fool contributors to spotlight one of their top stocks for cashing in on the trend. Read on to see why they think Skyworks Solutions (NASDAQ:SWKS), Verizon (NYSE:VZ), and Apple (NASDAQ:AAPL) stand out as likely winners.
This chip specialist will benefit as 5G heats up
Keith Noonan (Skyworks Solutions): The evolution of 5G is still at its early stages and will bring about surging demand for connectivity chips in a wide range of device categories. Skyworks Solutions is a provider of radio-frequency (RF) communications chips for mobile devices and other hardware, and it looks poised to benefit from the progression of next-generation network technologies as it continues to provide components for Apple and other tech leaders.
In addition to big growth opportunities in mobile, Skyworks will have opportunities to deliver solutions for augmented reality devices, self-driving cars, and a wide range of Internet of Things technologies. Dramatically faster upload and download speeds enabled by 5G will pave the way for a rush of new applications, and the RF specialist should enjoy substantial sales and margin growth as equipment manufacturers move to take advantage of higher-frequency wavelengths that can enable faster data transmissions.
The stock currently trades at roughly 19 times this year's expected earnings -- a level that looks very attractive considering that the company is likely at the onset of a multiyear performance boost spurred by the 5G-driven mobile upgrade cycle and emerging growth opportunities in other hardware categories. Skyworks also has a relatively strong balance sheet, which should provide the flexibility to pursue internal growth initiatives and acquisitions opportunities as they arise. It's also possible that investors could see big returns if Skyworks is acquired by a larger player in the semiconductor or broader technology space.
With strong tailwinds at its back and multiple avenues to delivering big wins for investors, Skyworks stands out as a hot play in 5G.
Value investors: Listen to Buffett and buy Verizon
Jamal Carnette (Verizon): Shares of Verizon jumped when it was revealed Warren Buffett's Berkshire Hathaway took a major stake in the telecom. Berkshire is not alone in seeing the value in 5G; the prior administration considered 5G technology so critical to future technology like autonomous vehicles, artificial intelligence, and defense that it briefly considered nationalizing a network.
Buffett is famously known for his adherence to value investing, and Verizon is a great pickup for the Oracle of Omaha. Even after the acquisition bump, shares yield greater than 4.5% and trade at 13 times trailing earnings versus a yield of 1.5% and earnings multiple of 40 times for the greater S&P 500.
Skeptics rightly point out that Verizon has a high debt pile, but unlike AT&T this was not the result of wasteful acquisitions. Verizon Wireless was initially a joint venture with British telecom Vodafone. The deal was inked decades ago, and by the time Verizon decided to buy out Vodafone's 45% equity stake in 2013, the price tag of $130 billion required the largest debt issuance ever. My Fool colleague Travis Hoium covers why debt service isn't a problem for this cash-minting telecom.
Likewise, Verizon can easily support the dividend. The company's free cash flow payout ratio was below 50% in 2020, and that's after paying $20 billion in capital expenditure to build out its massive 5G network. For long-term investors, Verizon presents an asymmetric risk/reward construct: a cheap, high-yielding stock that offers a long-term opportunity from the growth of 5G connectivity.
The industry giant
Joe Tenebruso (Apple): Few companies stand to benefit more from the rollout of 5G than Apple. Sales of the tech titan's most important product are poised to soar as people seek to harness the power of fifth-generation wireless networks and the blazingly fast internet speeds they can deliver.
Analysts say a 5G supercycle will fuel iPhone sales in the coming years, as hundreds of millions of people upgrade to Apple's latest models that feature the new technology. Strong iPhone sales should also boost Apple's high-margin service revenue, as more people buy apps and subscribe to the company's popular offerings, such as Apple News+ and Apple Music.
More profits for Apple mean more dividends and share repurchases for investors -- both of which should help to drive its stock price steadily higher over time. Apple's sterling fiscal 2021 first-quarter results give evidence that these trends are already underway. Its revenue climbed 21% year over year to $111.4 billion, driven by a 17% rise in iPhone sales and a 24% jump in services revenue. Apple's net income, in turn, surged 29% to $28.8 billion, while its earnings per share -- which were boosted by stock buybacks -- soared 35% to $1.68.
Yet with Apple's iPhone supercycle still in its early stages, investors who buy shares today can position themselves to profit handsomely from the tech giant's exciting 5G growth opportunity.