In 2019, fifth-generation (5G) wireless technologies virtually dominated the headlines in the telecommunications industry. Unsurprisingly, the year presented several opportunities to telecom companies to bolster their revenue streams despite the nagging trade restrictions. 5G wireless has broadened the addressable market for carriers and embedded them further into varied digital ecosystems.
That said, use cases of 5G have not yet proved to be the likely solution for solid revenue growth in developed markets. In an effort to achieve significant market traction, communications service providers have rapidly deployed the latest 4G LTE Advanced technologies for customers. At the same time, they are expanding fiber optics networks to drive 4G LTE and 5G wireless standards — high speed, low latency. Moving into 2020, analysts expect product innovation and increase in M&A to facilitate further growth of the industry. Technological advances have changed the way consumers communicate, resulting in higher data consumption and video streaming. But intense competition and commoditization of services have limited the chance to benefit from these trends. In wireline business, traditional landline phone service is increasingly being ditched in favor of wireless. In cable, consumers are increasingly cutting the video cord for over-the-top online streaming alternatives. In wireless, more data traffic on the network has necessitated capital investments to increase capacity while monetizing demand. Most of these prospects have stemmed from changing market conditions and evolving consumer preferences. 5G Holds the Key Upfront investment in capital and wireless spectrum for 5G has proven to be substantially higher than prior generations of wireless deployments due to network density requirements, potentially hurting return of capital metrics. The potential for meaningful revenues to lag 5G buildouts poses significant credit risks for providers pursing aggressive deployments. The next generation of wireless technology is likely to propel the industry to greater heights throughout 2020. However, the success of this technology hinges on substantial investments to upgrade infrastructure in the core fiber backhaul network to support growth in data services. With operators moving toward converged or multi-use network structures, combining voice, video and data communications into a single network, the industry is developing solutions to support wireline and wireless network convergence. Vying for first-mover advantage, leading operators have launched 5G wireless residential broadband services in multiple U.S. markets this year, while a full phased 5G wireless network is expected to go live in 2020. The top competitors include AT&T Inc. T, Verizon Communications Inc. VZ and T-Mobile US, Inc. TMUS. Overall, the industry appears poised to benefit from favorable business dynamics and inherent sector strength. Winning Formula Against this backdrop, it’s a compelling opportunity for long-term investors (who are looking to enhance their portfolio returns) to bet on high-flying stocks. Here, with the help of the Zacks Stock Screener, we’ve handpicked three telecom stocks that either carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). They also have a market capitalization of more than $1 billion. Backed by healthy fundamentals, these stocks boast immense upside potential and are likely to beat the market in the future. You can see the complete list of today’s Zacks #1 Rank stocks here. More so, these outperformers have more than doubled the S&P 500 composite’s return of 26.1% on a year-to-date basis, and are well placed to continue the winning spree. YTD Performance Recommendation Qualcomm Incorporated QCOM: Shares of this San Diego, CA-based digital communication products maker, currently sporting a Zacks Rank #1, have rallied 55.2% year to date. Qualcomm is focusing to retain its leadership in 5G, chipset market and mobile connectivity with several technological achievements and innovative product launches. The company has long-term earnings growth expectation of 14%. The Zacks Consensus Estimate for its current-year earnings has been revised 4.3% upward over the past 60 days. Qualcomm topped earnings estimates in each of the trailing four quarters, the average surprise being 8.7%. Acacia Communications, Inc. ACIA: Shares of this Maynard, MA-based high-speed coherent optical interconnect products manufacturer, with a Zacks Rank #2, have surged 77% year to date. The consensus estimate for its current-year earnings has been revised 24.1% upward over the past 60 days. The company has long-term earnings growth expectation of 30%. Acacia surpassed earnings estimates in each of the trailing four quarters, the average surprise being 27.2%. Ubiquiti Inc. ( UI Quick Quote UI - Free Report) : Shares of this New York-based company, flaunting a Zacks Rank #1, have added a whopping 90.7% year to date. Ubiquiti develops networking technology for service providers, enterprises and consumers worldwide. Its service provider product platforms provide carrier-class network infrastructure for fixed wireless broadband, wireless backhaul systems and routing. Its enterprise product platforms offer wireless LAN infrastructure, video surveillance products and machine-to-machine communication components. The company has long-term earnings growth expectation of 9.4%. The Zacks Consensus Estimate for its current-year earnings has been revised 4.9% upward over the past 60 days. It topped earnings estimate thrice in the trailing four quarters, the average positive surprise being 16.1%. Road Ahead With a surge in video and bandwidth-intensive applications, providers are increasing investments in LTE, broadband and fiber to deliver additional capacity and ramp up Internet and wireless network infrastructure. Despite operational headwinds and trade tensions remaining latent threats, the telecom industry is well positioned to benefit from solid growth drivers with the widespread launch of 5G service, increased market traction of fiber optics and massive proliferation of data traffic. At the same time, the players remain focused on leveraging wireline momentum, expanding media coverage, improving customer service and achieving a competitive cost structure to generate higher average revenue per user while attracting new subscribers. All in a zero-sum game! Zacks Top 10 Stocks for 2020 In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020? These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>