The United States is progressing well to lead the world in 5G — the next generation of wireless connectivity — which will enable faster speeds and low-latency wireless broadband services. Although 5G network is not likely to replace existing 4G standards on a large scale before 2020, several telecom behemoths are expected to launch 5G smartphones in 2019.
As wireless service providers ramp up investments in 5G network, wireless equipment makers are set to benefit significantly. Consequently, shares of wireless equipment manufacturers are also flourishing. Year to date, the wireless equipment industry has gained more than 19% surpassing the market's benchmark S&P 500 Index's gain of 15.2%.
Trump's America Must Win Race Begins
On Apr 12, President Donald Trump and the FCC unveiled several initiatives to accelerate 5G wireless network deployment in the United States. Trump said, “The race to 5G is on and America must win.”
Per Reuters, the global 5G wireless market size will reach $1,271 billion by 2025. Per Reuters, the market is forecast to grow more than 49.1% over the 2018-2025 period. DELOITTE Global has predicted that 25 telecom operators will launch 5G in 2019 and 26 others will follow suit in 2020. About 20 vendors will launch 5G-enabled smartphones in 2019 and over 1 million 5G handsets are likely to be shifted this year.
The FCC auctioned 1,550 MHz spectrum for commercial use of 5G wireless network. Furthermore, the regulator is going to auction a massive 3,400 MHz of new spectrum in the Upper 37 GHz, 39 GHz and 47 GHz spectrum bands. Additionally, the FCC is set to create $20.4 billion “Rural Digital Opportunity fund,” to provide high-speed broadband connection to 4 million homes and business enterprises in rural areas.
National Security Concerns Dominate Telecom Space
Although, President Trump reiterated that 5G initiatives should be private-sector led, instead of a government developed shared network proposed earlier, national security will be the key issue for the government.
On May 15, Trump issued an executive order declaring a national emergency preventing domestic corporates from using information and communications technology equipment from sources as this “poses an unacceptable risk to the national security of the United States.”
Accordingly, the Department of Commerce banned Chinese telecom behemoth Huawei Technologies and its affiliates to do business with U.S. companies. President Trump has given enough indication that his administration will take special interest in the functioning of the telecom industry.
U.S. companies that rely on low-cost Chinese imports are unhappy about the move as it will raise prices of high-tech equipment and several electronic products for the telecom sector. However, the ban on Chinese equipment will certainly help U.S. and European wireless equipment manufacturers.
Our Top Picks
Against this backdrop, we have narrowed down our search to five U.S. wireless equipment stocks each carrying either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and having strong growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows price performance of our five picks year to date.
LM Ericsson (ERIC - Free Report) provides information and communications technology solutions for wireless service providers. It operates through four segments: Networks, Digital Services, Managed Services and Emerging Business and Other. The company has expected earnings growth of 1,167.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 18.8% over the past 60 days. The stock sports a Zacks Rank #1.
ADTRAN Inc. (ADTN - Free Report) provides networking and communications equipment worldwide. It operates through two segments, Network Solutions and Services & Support. The company has expected earnings growth of 197.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 126.7% over the past 60 days. The stock sports a Zacks Rank #1.
PCTEL Inc. (PCTI - Free Report) designs and manufactures precision antennas, which are used primarily in small cells, enterprise Wi-Fi access points, fleet management and transit systems, and in equipment and devices for the Industrial IoT. The company has expected earnings growth of 675% for the current year. The Zacks Consensus Estimate for the current year has improved by 187.5% over the past 60 days. The stock flaunts a Zacks Rank #1.
Cisco Systems Inc. (CSCO - Free Report) designs, manufactures, and sells Internet Protocol based networking and other products related to the communications and information technology industry worldwide. The company has expected earnings growth of 18.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.7% over the past 60 days. The stock carries a Zacks Rank #2.
Ubiquiti Networks Inc. develops networking technology for service providers, enterprises, and consumers. It focuses on three principal technologies, including high-capacity distributed Internet access, unified information technology, and consumer electronics for home and personal use. The company has expected earnings growth of 32.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.7% over the past 60 days. The stock carries a Zacks Rank #2.
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