With continuing digitization and remote lifestyle adoption, the fifth-generation cellular network, 5G, which is at least 10 times faster than 4G, is conquering the internet industry. Due to the rapid rollout of 5G by operators, strong demand in China and North America, and the availability of affordable handsets, worldwide 5G mobile subscriptions are expected to exceed 3.4 billion by the end of 2026.
Also, the 5G standard, with its impressive features, is facilitating the autonomous vehicle industry and is set to power the Internet of Things (IoT). So, fundamentally sound 5G stocks Telefonaktiebolaget LM Ericsson (publ) (ERIC) and Ciena Corporation (CIEN) could be solid bets now.
However, due to the ongoing chip shortage, a lack of affordable 5G mobile phones could affect 5G adoption. Therefore, we think fundamentally weak companies Marvell Technology, Inc. (MRVL) and Inseego Corp. (INSG) may struggle to stay afloat. So, these stocks are best avoided now.
Click here to checkout our 5G Industry Report for 2022
Stocks to Buy:
Telefonaktiebolaget LM Ericsson (publ) (ERIC)
Headquartered in Stockholm, Sweden, ERIC offers communication infrastructure, services, and software solutions to telecommunications and other industries. It operates through four segments–Networks; Digital Services; Managed Services; and Emerging Business and Other.
ERIC’s net sales increased 2.4% year-over-year to SEK71.3 billion ($7.73 billion) for the fourth quarter, ended Dec. 31, 2021. The company’s net income grew 40.3% from the year-ago value to SEK10.1 billion ($1.1 billion). Its EBIT rose 8.2% from the prior-year quarter to SEK11.9 billion ($1.29 billion). And the company’s EPS increased 33.6% year-over-year to SEK3.02 ($0.33).
Analysts expect ERIC’s revenue for its fiscal year 2023 to be $27.64 billion, representing 2.2% year-over-year growth. The company’s EPS is expected to increase 7.1% next year. Furthermore, the stock has gained 14.1% in price over the past three months.
ERIC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock has an A grade for Value and a B grade for Stability and Quality. We have also graded ERIC for Growth, Momentum, and Sentiment. Click here to access all ERIC’s ratings. ERIC is ranked #8 of 56 stocks in the Technology – Communication/Networking industry.
Ciena Corporation (CIEN)
CIEN is a networking system, services, and software company. The Hanover, Md.-based concern operates through four segments: Networking Platforms; Platform Software and Services; Blue Planet Automation Software and Services; and Global Services. It provides network hardware, software, and services that support transport, routing, service delivery, and other worldwide communications networks.
Last month, Vodafone Idea Limited structured national backbone networks with CIEN to accelerate the next wave of digital connectivity. The collaboration should provide a strategy to build a future-fit network for emerging technologies, such as 5G and other services.
For its fiscal fourth quarter, ended Oct. 30, 2021, CIEN’s total revenue increased 25.7% year-over-year to $1.04 billion. The company’s gross profit grew 18% from the year-ago value to $477.12 million. Its income from operations rose 47% from the prior-year quarter to $137.41 million. Also, the company’s net income increased 59.1% year-over-year to $103.5 million.
CIEN’s revenue is expected to increase 12.2% year-over-year to $4.06 billion in its fiscal year 2022. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in three of the trailing four quarters. CIEN’s EPS is estimated to increase 7.2% in the current year. The stock has surged 31.1% ovin price er the past nine months.
CIEN’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has a B grade for Growth and Quality.
In addition to the POWR Rating grades I have just highlighted, one can see CIEN’s ratings for Value, Momentum, Stability, and Sentiment here. CIEN is ranked #13 in the Technology – Communication/Networking industry.
Stocks to Avoid:
Marvell Technology, Inc. (MRVL)
MRVL is a Hamilton, Bermuda-based data infrastructure semiconductor company that has operations in the United States, China, Malaysia, the Philippines, Thailand, Singapore, India, Israel, Japan, South Korea, Taiwan, and Vietnam. The company's subsidiary, Inphi Corporation, provides analog and mixed-signal semiconductor solutions for the communications and cloud markets. MRVL also provides a range of storage products that comprise storage controllers for hard disk drives (HDD), solid-state drives, and fiber channel products.
MRVL’s net revenue increased 61.5% year-over-year to $1.21 billion for the third quarter, ended Oct.30, 2021. However, the company’s total operating expenses grew 59.1% from the year-ago value to $621.16 million. Its operating loss rose 255.1% from the prior-year quarter to $33.34 million. Also, the company’s net loss increased 173% year-over-year to $62.53 million. MRVL stock has declined 17.2% in price over the past month.
MRVL's POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. Also, the stock has a D grade for Value, Stability, and Quality.
We have also graded MRVL for Growth, Momentum, and Sentiment. Click here to access all MRVL's ratings. MRVL is ranked #91 of 100 stocks in the A-rated Semiconductor & Wireless Chip industry.
Inseego Corp. (INSG)
San Diego, Calif.-based INSG develops fixed and mobile wireless and cloud solutions for large enterprise verticals, service providers, governments, and consumers worldwide. The company’s products include mobile hotspots, 4G and 5G fixed wireless routers, universal serial bus (USB) modems, integrated telematics, and mobile tracking hardware devices. INSG also sells software-as-a-service (SaaS), software, and services solutions in various mobile and IIoT vertical markets.
INSG’s total net revenues decreased 26.6% year-over-year to $66.22 million for the third quarter, ended Sept. 30, 2021. The company’s gross profit declined 24.7% from its year-ago value to $18.94 million. Its operating loss increased 190.1% from the prior-year quarter to $9.97 million. Also, the company’s net loss grew 32.2% year-over-year to $7.19 million.
INSG’s EPS is estimated to decrease by 123.1% in the current year. The stock has declined 51.5% in price over the past nine months and 76.4% over the past year.
INSG’s poor prospects are reflected in its POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. Also, the stock has a D grade for Sentiment and Quality.
Click here to access the additional INSG’s ratings (Growth, Value, Momentum, and Sentiment). INSG is ranked #51 in the Technology – Communication/Networking industry.
Click here to checkout our 5G Industry Report for 2022
MRVL shares were trading at $70.64 per share on Thursday afternoon, down $3.44 (-4.64%). Year-to-date, MRVL has declined -19.20%, versus a -5.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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