Fifth-generation wireless (5G) is becoming the global standard for wireless networks. But the full rollout of 5G will take several years – and billions of dollars. The takeaway for investors is that there’s still plenty of opportunity to find undervalued 5G stocks.
5G is not just essential in mobile phones. It’s also critical to areas like the Internet of Things (IoT). According to Research and Markets, the global 5G IoT market is expected to grow at a CAGR of 106.67% between 2022 and 2027.
5G will also be critical at the enterprise level. This includes applications such as autonomous driving and the emerging virtual reality sector (e.g. the metaverse). Ericsson (NASDAQ:ERIC) estimates this sector will expand at a CAGR of 25% between now and 2030.
Investors can look for undervalued 5G stocks in several areas including the semiconductor market, companies that supply the equipment and infrastructure, as well as real estate investment trusts (REITs). Here are three 5G stocks – one from each of those areas – that are offering investors good value in 2023.
Qualcomm (QCOM)
In the chip sector, Qualcomm (NASDAQ:QCOM) is an undervalued stock to consider. The company has entered into partnerships with many automakers in an effort to become a significant player in the IoT arena.
But when most investors think about Qualcomm, they think of mobile phones. And for good reason. Virtually every mobile phone, likely including the device you’re reading this article on, includes hardware from Qualcomm. In fact, in Qualcomm’s most recent quarter, revenue from the mobile phone sector accounted for $5.3 billion, or 75% of the company’s revenue.
Revenue and earnings are lower on a year-over-year (YOY) basis and that has put pressure on QCOM stock, which is down more than 24% in the last 12 months. However, with a forward price-to-earnings (P/E) ratio of just over 17x earnings, it won’t take much growth for the share price to shoot higher. In the meantime, investors can collect a dividend that currently has a 2.79% yield.
Corning (GLW)
Corning (NYSE:GLW) is a leading provider of the fiber-optic cable that will be necessary to build out the 5G infrastructure. In 2022, the company launched its robust TXF fiber that offers features that will set a new industry standard.
However, for a number of reasons, Corning’s revenue and earnings have been mostly flat for several years. In July, the company reported weaker YOY earnings due to lower demand from smartphone manufacturers. That’s because these manufacturers are trying to right-size their inventories to reflect lower consumer demand caused by inflation and rising interest rates.
This has shown up in the performance of GLW stock. But as a long-term buy-and-hold opportunity, Corning sets up as one of the most undervalued 5G stocks. Since its most recent earnings report, Oppenheimer (NYSE:OPY) reiterated its outperform rating for GLW stock and gave it a $42 price target, which would be a 24% increase from the stock’s price as of August 11, 2023.
Crown Castle (CCI)
Crown Castle (NYSE:CCI) is a real estate investment trust that owns over 40,000 cell towers and 85,000 miles of fiber-optic cable. CCI stock is down over 42% in the last 12 months. But this looks like an overreaction to short-term circumstances.
One reason could be that investors are concerned over the company’s low margins. Building or acquiring a network of cell phone towers is a capital-intensive opportunity. And it makes sense that Crown Castle is sensitive to rising interest rates. The company’s 6% dividend is also less attractive with investors being able to collect a yield of nearly 5% from fixed-income investments.
Furthermore, the company is also facing the likelihood of lower revenue from T-Mobile (NASDAQ:TMUS) – its largest customer – as it consolidates its Sprint network. This has kept the company’s revenue and earnings flat to slightly higher on a YOY basis.
Nevertheless, as 5G penetration continues to expand, the company’s revenues will rise accordingly. And with a forward P/E ratio of just 14x earnings, CCI stock is one of the undervalued 5G stocks to watch over the next several years.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
