Why We Love These 5G StocksAug 26, 2021
Over the last few years, talks of 5G technology have taken headlines across the globe as telecom companies and other tech companies look to prepare for the transition. Within the investing world, many people have anticipated how this trend will play out and what it means for companies operating in this realm.
But before we discuss what different 5G technologies we are investing in (skip to the bottom to see it), let's discuss what 5G technology is, how the technology that came before it (4G) changed the broader industry for the better, and how the future could mirror the past.
If this sounds familiar to you, that's because we wrote about this subject back in February. This piece today will serve as an update on our 5G thesis and how we're thinking about the best 5G stocks now!
If you want to see the stock update, just skip to the bottom section labeled, "5G Technology Companies".
So, what is 5g technology? 5G is the 5th generation mobile network. It is a new global wireless standard after 1G, 2G, 3G, and 4G networks. 5G enables a new kind of wireless network that is designed to connect virtually everyone and everything together including machines, objects, and devices.5G wireless technology is meant to deliver higher multi-Gbps peak data speeds, ultra-low latency, more reliability, massive network capacity, increased availability, and a more uniform user experience to more users. Higher performance and improved efficiency empower new user experiences and connect new industries.
So how is this different from 4G networks and why does it matter?
Before we answer this question, let's take a look at what 4G technology enabled and how it changed the world. From there we can dive into what 5G coverage will do, now that we understand what it is and how it is advancing.
Advancement of telecommunication networks:
When 3G was rolled out, it allowed the mobile phone to receive and send emails, get map and satellite directions, and download music and videos. When 4G was rolled out, it was able to do all of this but smarter and faster. This was a massive step forward for mobile communication and technology. And this 4G technology led to the true "smartphone revolution". With a smarter and faster global network, mobile apps started to be built and dominate user interaction. With the rise of this speed, came new applications like Uber and Instagram. With a faster cellular network, applications like Uber were able to (in real-time) access a global network of drivers and connect them with passengers. In the case of Instagram, users could upload videos and photos remotely and connect with friends and famous individuals. All of these technologies would have not been possible if it were not for the 4G technology supporting them. Historically these applications were all web-based (with wifi connections) but now with 4G these could all be supported by a wireless network on any mobile phone!
Fast forward to today and let's discuss how 5G technology will lead the wave of these next new types of applications that were not possible with 4G. Now we can discuss how it is different from 4G and why it matters!
We want to preface this section with the fact that while there are two main types of 5G technology, they do both have limiting factors.
Long story short however, they can both operate very fast, up to about 50 times faster than standard 4G. However certain uses of 5G coverage, such as mmWave 5G are not able to operate at far distances from the receiver. In addition, while it's possible to use this type of 5G service inside certain locations, it is more often than not restricted to outdoor use as it can often be subject to network interference. As a result, coverage is very limited and the process of increasing that coverage is very slow.
Sub-6 5G, on the other hand, is very robust and capable of traveling long distances. One of the most interesting opportunities for this mobile network is not just faster download speeds for our phones (think Netflix, Spotify, etc.) but for lower latency (Latency: The delay before a transfer of data begins following an instruction for its transfer) for applications we want to use but currently cannot. For example, cloud-based gaming, autonomous vehicles, remote surgeries, etc. have significant restrictions due to the speed at which these networks need to be able to operate efficiently. It is theorized that with the rollout of this new infrastructure, the lowering of latencies will be able to enable technologies like this, that we have long dreamt of! And while the applications of lower latency may not fully be understood today, in time it'll enable the next wave of technologies that we can only imagine.
Now that we understand what 5G is, what it does, how it differs from 4G and what it enables, let's discuss the companies out there making the biggest impact:
5G Technology Companies:
This is the part that most of you came here looking for.
We want to make it clear that the stocks below are the same stocks that we recommended back in February and we couldn't be prouder to say that!
The reason we're thrilled to say that is because our investment thesis on them hasn't changed. That thesis is that these companies below are still the strongest suitors to benefit from the massive changes in 5G technology. Therefore, we'll provide our original thesis on them, give an update, and set a new price target!
1) Casa Systems (CASA):
Original Thesis: For those of you who have been following us for a bit, you might remember that we've written about CASA before. While the last post did not mention 5G, CASA is definitely a play into the 5G investment theme! Casa Systems is pioneering advanced ultra-broadband 5G solutions for mobile, cable, fixed, and any converged service provider. Casa Systems has game-changing core and access solutions to transform any broadband network by delivering the service agility and network efficiency needed for the 5G future.
Since we wrote this 6 months ago, the stock is up ~20%!
As we mentioned in the brief blurb above, we've been investors in CASA for some time now and we will continue to be for the foreseeable future. While the earnings miss during their last call was somewhat troublesome, the more important thing is that revenue beat expectations and is up strongly YoY. While the 5G rollout will take a while to play out, the key takeaway is that CASA is participating strongly in the future of this important infrastructure play. This is one of our top long-term picks (think multi-year holding period).
Price Target: $9 (~25% upside)
Target Date: 8-10 Months
2) Google (GOOGL):
Original Thesis: While everyone knows Google for their search engine, Google is actually involved in a number of projects that would pan out nicely with the success of a 5G network. When looking at their portfolio, Google is invested in Waymo (self-driving), which needs to map out all of the roads in the US for their cars to react in real-time. With the success of a 5G network, latency is reduced, making this technology more feasible and scalable. Additionally, Stadia (their cloud-based gaming platform) would be able to leverage 5G networks for a low latency further and make cloud-based gaming, a better experience. With this thought, AR/VR capabilities will be able to leverage better networks to create a more robust experience (Also think of companies like Facebook that own companies like Oculus that leverage this tech)! These may all take years to play out, but this is something Google stands to benefit from greatly!
Google is on a tear this year as they're up 65% over the last 8 months!
While we like to invest in themes here at Moby, the key is that we'd never invest in a stock just because it plays nicely into how we see the world playing out. Google is a prime example of this. We love the company even if the word 5G never existed. However, a lot of their LONG TERM success will be reliant upon the success of 5G deployment (see thesis above). Therefore, we're continuing to hold the name. Business as usual here.
Price Target: $3,410 (~20% upside)
Target Date: Q1 2022
3) American Tower Corp (AMT):
Original Thesis: American Tower owns and operates telecommunications real estate in the United States and internationally (19 countries total). They own and/or operate roughly 41,000 sites in the United States and 137,000 sites internationally. AMT generates revenue primarily by signing telecommunications providers to long-term non cancellable leases for vertical tower space. Tenants then utilize this space to install communications equipment. As discussed, 5G networks pass more data than any other network type that's ever existed. Increased tower infrastructure is imperative for companies to successfully deploy 5G networks. For this reason, it seems that AMT stands to benefit from this trend, as its tower real estate will be in higher demand. AMT stock also offers an attractive dividend of ~2.1%.
Update: This is the most clear-cut 5-G play. As one of the core manufacturers of 5G towers, AMT is literally laying the groundwork for the future of this technology.
The stock has responded by being up ~30% this year so far!
If you want to invest directly in this trend, this is the closest way to do it. Add in the fact that they pay you to literally hold the stock, and it is a very attractive investment.
Price Target: $325 (~15% upside)
Target Date: December 2021
4) Crown Castle International (CCI):
Original Thesis: CCI is a REIT whose infrastructure portfolio consists of more than 40,000 cell towers. Its infrastructure network continues to grow daily and is poised to benefit as the demand for data grows with the worldwide 5g rollout. CCI's management team has shown a continued commitment to continuing to make sizable investments into its infrastructure to meet the emerging demand for real estate that's can support 5G wireless networks. CCI offers a strong dividend of roughly 3.25%.
Update: This is a very similar play to the above. However, CCI is a real estate investment company that owns/partially owns the cell towers rather than doing the building themselves.
The stock has responded by being up 23% YTD!
The slight difference here will affect the gains of the stock itself. Because AMT is taking on more risk and can't really liquidate its projects, the stock is more prone to higher upside and downside whereas CCI is a safer play that offers more income. This stock is for the more risk-averse investor whereas AMT is for the more risk-taking investor. Either way, we like both investments but are geared for different people.
Price Target: $218 (~15% upside)
Target Date: Q1 2022