Tech

The five stocks we own to build a 5G network are:

Apple has finally announced the 5G iPhone. This demonstrates a multi-year effort to build a working 5G network. You might think that the best way to regain this trend is to focus on the biggest network infrastructure players, but some small businesses are very rewarding for investors.

Jamie Quera, who co-manages the Buffalo Small Cap Fund BUFSX,
-0.53%,
He listed five companies that expect to benefit from “increasing demand for communications bandwidth,” including 5G, over the next few years.

Although 5G deployments have been touted for a long time, new technologies that move data 100 times faster than today’s 4G networks are only available in some cities. However, Apple Inc.’s AAPL,
-1.40%
The rollout of two 5G-enabled iPhone phones this week highlights how fast the demand for faster networks will grow, with starting prices unchanged from last year’s iPhone.

Here’s an alphabetical list of five small businesses that Cuellar believes are ready to take advantage of a “good multi-year spending environment” for building 5G networks. Scroll the table at the bottom to see all the data.

Company

Ticker

Total Return-From 2020 to October 13th

Market capitalization. ($ mil)

Forward price / rate of return

Estimated changes in sales-2020 calendar

Changes in sales-Calendar 2019

Adtran Inc.

ADTN,
-1.98%

12%

$ 520

42.0

-Five%

0%

Calix Inc.

CALX,
-1.19%

144%

$ 1,198

31.6

14%

-Four%

Ciena Corp.

CIEN,
-0.71%

-2%

$ 6,432

16.7

-2%

13%

Inphi Corp.

IPHI,
-0.60%

66%

$ 6,392

35.6

87%

twenty four%

Lumentum Holdings Inc.

LITE,
-0.97%

Five%

$ 6,268

14.8

-1%

31%

Source: FactSet

Click the ticker for more information on each company.

All five shares are held by the Buffalo Small Cap Fund, which is rated four (out of five) by Morningstar. Only two of the five are expected to show sales growth across 2020, while three achieved double-digit growth last year.

Here’s a detailed explanation of the five, followed by a summary of the opinions provided by Wall Street analysts (also known as sell-sides).

Adtran

During the interview, Cuellar called Adtran Inc. ADTN.
-1.98%
“If it happens, it’s the best way to gain share from Huawei in Europe.” Huawei Technologies, not only from the Trump administration, but also from many other countries, with network security concerns and the Chinese government. There is a lot of pressure on the relationship.

Cuellar called Adtran the “Story of 2021” because it expects network spending to “surge” among its largest customers, including BT Group PLC BT.A.
-1.76%,
Deutsche Telekom AG DTE,
-0.17%

DTEGY,
-0.36%
And orange ORAN,
-1.94%..

Calix

Calix Inc. CALX,
-1.19%
According to Cuellar, they can benefit from increased spending among smaller regional broadband service providers in the United States. The company has added software services in recent years, and revenue from systems is growing much faster than hardware sales. He said the shift not only meant better margins, but also the expected “multiple expansions” of stocks.

Siena

Ciena Corp. CIEN,
-0.71%
Cuellar operates an optical network and believes it is another beneficiary of the global relocation from Huawei.

Shares rose 24 September 3 after CEO Gary Smith warned during the company’s earnings announcement that lower customer spending caused by the coronavirus crisis would have a negative impact on “next quarter” earnings. % It plummeted. I recovered. However, Smith added that demand for broadband access is growing at a pace of 25% to 30% annually. This means that Ciena’s customers will eventually be forced to spend more.

Cuellar said stock prices after the fall were “quite attractive.” He described Ciena’s service offering as “quite broad” and said its technology was “dominant” in engineering quality compared to its peers.

Infi

Inphi Corp. IPHI,
-0.60%
We provide components to companies that manufacture network equipment for telecommunications carriers and data center operators. Cuellar calls this “a high-growth name with the best product cycle story in the field.”

Inphi has the highest price-earnings ratio on the list, but in this market investors are clearly focusing on high-double-digit sales growth. According to Cuellar, Inphi management expects customer spending on 5G to “surge” in 2022.

Lumentum

Lumentum Holdings Inc. LITE,
-0.97%
We sell optical and 3D components globally, including laser sensors used in the iPhone. Cuellar said the company has withdrawn from low-margin businesses to produce “less competitive, highly valued products.”

The following is an overview of the Group’s sell-side analysts’ valuations and price targets.

Company

Ticker

Share “Purchase” Ratings

Share a neutral rating

Closing Price-October 14th

Consensus price target

Potential 12-month rise

Adtran Inc.

ADTN

43%

57%

$ 10.84

$ 13.90

28%

Calix Inc.

CALX

100%

0%

$ 19.50

$ 23.60

twenty one%

Ciena Corp.

CIEN

79%

twenty one%

$ 41.68

$ 53.44

28%

Inphi Corp.

IPHI

88%

12%

$ 123.08

$ 148.31

twenty one%

Lumentum Holdings Inc.

LITE

88%

12%

$ 83.06

$ 102.50

twenty three%

Source: FactSet

Do not miss it:Unless you take advantage of this powerful strategy, your portfolio isn’t as diversified as you might think.

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