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Buy 4 Wireless Equipment Stocks for Seamless Returns
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U.S. telecommunications had a disappointing 2017. While the S&P 500 index gained 16.91% in 2017, the telecom service provider industry declined 0.73% and the telecom equipment manufacturer industry rallied 12.09%. However, the situation started showing signs of improvement from fourth-quarter 2017 and most of the major telecommunications stocks have been performing well since then. The momentum is likely to through the end of 2018, albeit at a slow pace.
A growing U.S. economy speeds up the demand for real-time voice, data, and video manifold. The escalation in demand has encouraged telecom service providers to undertake large network extensions, while upgrading plans. The increasing demand for technologically superior products has been a silver lining for the telecommunication industry in an otherwise tough environment. This in turn has given a boost to the demand for telecom infrastructure developers, particularly wireless equipment manufacturers.
Major Positives
Several positives appeared for the telecom industry in the last quarter of 2017. President Donald Trump’s proposed policy changes have made the overall economic outlook fairly bullish. The two pro-growth agendas of Trump, namely significant cut in corporate tax and deregulation are major catalysts to the U.S. economy. Trump has stated that he wants to do away with nearly 75% of all governmental regulations during his term as the President. We believe that the telecom industry will be one of the major beneficiaries of this policy change.
On Dec 14, 2017, in a landmark decision, the U.S. telecom regulator Federal Communications Commission (FCC) repealed the Net Neutrality laws that it had imposed under the Obama regime. There is little doubt that the ISP industry will be the major beneficiary after FCC dismantling Net Neutrality. The current FCC's less-restrictive regulatory attitude may also pave the way for new merger and acquisition deals between ISPs and online digital media companies.
The proposal to reduce corporate tax rate from 35% to 20% faced by telecom carriers would be immediately accretive to cash flow. Trump’s tax proposal will result in a huge windfall for telecom operators. The carriers can utilize this money for 5G network R&D and its deployment.
The telecom industry is highly capital-intensive in nature. Therefore, the immediate expensing of investment in all tangible, intangible and real property (other than land) would significantly benefit telecom carriers. This would encourage telecom operators to increase investment for capital expenditure. Major proposals such as a pledge to spend $1 trillion in infrastructure projects over a period of 10 years coupled with the above-mentioned policy changes are likely to spur higher consumer spending.
Upcoming 5G Wireless Network
Fifth-generation (5G) superfast wireless networks will provide the primary impetus to the telecom industry. In September 2017, Moody's Investors Service stated in a report that the evolution towards 5G wireless networks will result in higher capital spending for the U.S. wireless carriers. Per a report by research firm iGR, U.S. telecom operators will spend around $104 billion between 2015 and 2025 to upgrade their existing 4G networks to the upcoming 5G standards and thereafter, execute full installation of 5G wireless services.
We expect wireless networks to provide the primary impetus to the telecom industry. In this regard, Internet of Things (IoT) has the potential to emerge the numero uno factor for future growth in the space. According to a report by research firm International Data Corporation (IDC), worldwide spending on IoT will grow at 19.2% compound annual growth rate to nearly $1.7 trillion in 2020 from $698.6 billion in 2015.
Growing Demand for Fiber Optic Network
Fiber optic cable is a vital infrastructure in order to meet the growing demand for cloud-based business data, along with more video-streaming services by individuals. Moreover, fiber-optic cable network is vital for backhaul and last mile local loop, which are needed by wireless service providers for their upcoming 5G network.
Dark fiber provides abundant bandwidth, which is of utmost necessity for the smooth functioning of super-fast wireless networks such as 4G and 5G. Dark fiber based wireless backhaul provides scalability and efficiency to bandwidth management. This will eventually lead the company to significantly reduce its backhaul costs. Fiber networks are essential for the growing deployment of small cells. The increase in adoption of small cells is because of the inconvenience in installing large towers in inaccessible areas.
Our Top Picks
The U.S. wireless equipment industry has lately emerged as an intensely contested space where success thrives largely on technical superiority, quality of services and scalability. In order to stay abreast of competition, existing players need to be constantly on their toes, introducing innovative products to gain from the industry’s growing momentum. At this stage, we believe investors should choose stocks which promise strong near-term growth and carry a favourable Zacks Rank. Taking into account these factors, we present four such stocks for investors to consider:
InterDigital Inc. (IDCC - Free Report) : Headquartered in Wilmington, DE, InterDigital develops fundamental wireless technologies that are at the core of wireless devices, networks and services worldwide. The company holds a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Comtech Telecommunications Corp. (CMTL - Free Report) : Headquartered in Melville, NY, Comtech designs, develops, produces and markets innovative products, systems and services for advanced communications solutions. The company has a diverse customer base in the global commercial and government communications markets. Comtech has a long-term (three-five years) EPS growth estimate of 5% and a dividend yield of 1.84%. The company holds a Zacks Rank #2 (Buy).
Harris Corp. : Based in Melbourne, FL, Harris has evolved from being a diversified electronics company to one that is focused on communications. The company is a global provider of communications equipment and services to government and commercial customers in more than 150 countries. Major operational areas are network broadcasting, network test and management equipment and software, mobile radio networks, and air traffic control systems. Harris has a long-term (three-five years) EPS growth estimate of 6% and a dividend yield of 1.56%. The company holds a Zacks Rank #2.
Motorola Solutions Inc. (MSI - Free Report) : Based in Schaumburg, IL, Motorola Solutions is a leading communications equipment manufacturer, and has a strong market position in bar code scanning, wireless infrastructure gear, and government communications. Motorola Solutions has a long-term (three-five years) EPS growth estimate of 4.4% and a dividend yield of 2.1%. The company holds a Zacks Rank #2.
Solid Charts
The chart below shows that all the above-mentioned stocks have performed well in the last six months.
Bottom Line
Telecommunications is one of the few industries to have witnessed rapid technological improvement even during the recession. Owing to the significance of this service as an infrastructure product, we expect the overall economic dynamics to shift in favor of the industry. At this stage, we believe that these four stocks with a favourable Zacks Rank are poised to capitalize on the growing opportunities.
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Image: Bigstock
Buy 4 Wireless Equipment Stocks for Seamless Returns
U.S. telecommunications had a disappointing 2017. While the S&P 500 index gained 16.91% in 2017, the telecom service provider industry declined 0.73% and the telecom equipment manufacturer industry rallied 12.09%. However, the situation started showing signs of improvement from fourth-quarter 2017 and most of the major telecommunications stocks have been performing well since then. The momentum is likely to through the end of 2018, albeit at a slow pace.
A growing U.S. economy speeds up the demand for real-time voice, data, and video manifold. The escalation in demand has encouraged telecom service providers to undertake large network extensions, while upgrading plans. The increasing demand for technologically superior products has been a silver lining for the telecommunication industry in an otherwise tough environment. This in turn has given a boost to the demand for telecom infrastructure developers, particularly wireless equipment manufacturers.
Major Positives
Several positives appeared for the telecom industry in the last quarter of 2017. President Donald Trump’s proposed policy changes have made the overall economic outlook fairly bullish. The two pro-growth agendas of Trump, namely significant cut in corporate tax and deregulation are major catalysts to the U.S. economy. Trump has stated that he wants to do away with nearly 75% of all governmental regulations during his term as the President. We believe that the telecom industry will be one of the major beneficiaries of this policy change.
On Dec 14, 2017, in a landmark decision, the U.S. telecom regulator Federal Communications Commission (FCC) repealed the Net Neutrality laws that it had imposed under the Obama regime. There is little doubt that the ISP industry will be the major beneficiary after FCC dismantling Net Neutrality. The current FCC's less-restrictive regulatory attitude may also pave the way for new merger and acquisition deals between ISPs and online digital media companies.
The proposal to reduce corporate tax rate from 35% to 20% faced by telecom carriers would be immediately accretive to cash flow. Trump’s tax proposal will result in a huge windfall for telecom operators. The carriers can utilize this money for 5G network R&D and its deployment.
The telecom industry is highly capital-intensive in nature. Therefore, the immediate expensing of investment in all tangible, intangible and real property (other than land) would significantly benefit telecom carriers. This would encourage telecom operators to increase investment for capital expenditure. Major proposals such as a pledge to spend $1 trillion in infrastructure projects over a period of 10 years coupled with the above-mentioned policy changes are likely to spur higher consumer spending.
Upcoming 5G Wireless Network
Fifth-generation (5G) superfast wireless networks will provide the primary impetus to the telecom industry. In September 2017, Moody's Investors Service stated in a report that the evolution towards 5G wireless networks will result in higher capital spending for the U.S. wireless carriers. Per a report by research firm iGR, U.S. telecom operators will spend around $104 billion between 2015 and 2025 to upgrade their existing 4G networks to the upcoming 5G standards and thereafter, execute full installation of 5G wireless services.
We expect wireless networks to provide the primary impetus to the telecom industry. In this regard, Internet of Things (IoT) has the potential to emerge the numero uno factor for future growth in the space. According to a report by research firm International Data Corporation (IDC), worldwide spending on IoT will grow at 19.2% compound annual growth rate to nearly $1.7 trillion in 2020 from $698.6 billion in 2015.
Growing Demand for Fiber Optic Network
Fiber optic cable is a vital infrastructure in order to meet the growing demand for cloud-based business data, along with more video-streaming services by individuals. Moreover, fiber-optic cable network is vital for backhaul and last mile local loop, which are needed by wireless service providers for their upcoming 5G network.
Dark fiber provides abundant bandwidth, which is of utmost necessity for the smooth functioning of super-fast wireless networks such as 4G and 5G. Dark fiber based wireless backhaul provides scalability and efficiency to bandwidth management. This will eventually lead the company to significantly reduce its backhaul costs. Fiber networks are essential for the growing deployment of small cells. The increase in adoption of small cells is because of the inconvenience in installing large towers in inaccessible areas.
Our Top Picks
The U.S. wireless equipment industry has lately emerged as an intensely contested space where success thrives largely on technical superiority, quality of services and scalability. In order to stay abreast of competition, existing players need to be constantly on their toes, introducing innovative products to gain from the industry’s growing momentum. At this stage, we believe investors should choose stocks which promise strong near-term growth and carry a favourable Zacks Rank. Taking into account these factors, we present four such stocks for investors to consider:
InterDigital Inc. (IDCC - Free Report) : Headquartered in Wilmington, DE, InterDigital develops fundamental wireless technologies that are at the core of wireless devices, networks and services worldwide. The company holds a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Comtech Telecommunications Corp. (CMTL - Free Report) : Headquartered in Melville, NY, Comtech designs, develops, produces and markets innovative products, systems and services for advanced communications solutions. The company has a diverse customer base in the global commercial and government communications markets. Comtech has a long-term (three-five years) EPS growth estimate of 5% and a dividend yield of 1.84%. The company holds a Zacks Rank #2 (Buy).
Harris Corp. : Based in Melbourne, FL, Harris has evolved from being a diversified electronics company to one that is focused on communications. The company is a global provider of communications equipment and services to government and commercial customers in more than 150 countries. Major operational areas are network broadcasting, network test and management equipment and software, mobile radio networks, and air traffic control systems. Harris has a long-term (three-five years) EPS growth estimate of 6% and a dividend yield of 1.56%. The company holds a Zacks Rank #2.
Motorola Solutions Inc. (MSI - Free Report) : Based in Schaumburg, IL, Motorola Solutions is a leading communications equipment manufacturer, and has a strong market position in bar code scanning, wireless infrastructure gear, and government communications. Motorola Solutions has a long-term (three-five years) EPS growth estimate of 4.4% and a dividend yield of 2.1%. The company holds a Zacks Rank #2.
Solid Charts
The chart below shows that all the above-mentioned stocks have performed well in the last six months.
Bottom Line
Telecommunications is one of the few industries to have witnessed rapid technological improvement even during the recession. Owing to the significance of this service as an infrastructure product, we expect the overall economic dynamics to shift in favor of the industry. At this stage, we believe that these four stocks with a favourable Zacks Rank are poised to capitalize on the growing opportunities.
Don’t Even Think About Buying Bitcoin Until You Read This
The most popular cryptocurrency skyrocketed last year, giving some investors the chance to bank 20X returns or even more. Those gains, however, came with serious volatility and risk. Bitcoin sank 25% or more 3 times in 2017.
Zacks has just released a new Special Report to help readers capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
See 4 crypto-related stocks now >>