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Smart city and communication network concept. 5G. LPWA (Low Power Wide Area). Wireless … [+] communication.
getty
Stocks in the telecommunications sector run the gamut for fast growth leaders in technical areas such as 5G deployment and cloud enterprises to more utility-type players in cell towers and consumer phone services. Investment experts participating in our MoneyShow Top Picks 2022 report offer a look at a diversified range of telecom and networking stocks for those looking to dial up gains in 2022.
Marvell Technology Group (MRVL) is a lesser-known stock that has been on my radar for some time; it is a semiconductor, 5G, and software idea, explains. The best play on 5G may be smart devices — i.e. the “Internet of Things”. This is the name for all the web-enabled devices that collect, send and act on data using sensors, processors and other hardware to talk to each other.
5G is much more than just a faster internet. With data rates more than 100X that of 4G technology, it will have a major impact on many industries and services from robotics to artificial intelligence, self-driving cars and, of course, smartphones.
Marvell designs, develops and sells a wide variety of semiconductor products that are at the core of 5G-capable networks, processors and devices as they partner with and transition to 5G.
The company’s embedded processors and products are cutting-edge and already generating multibillion-dollar annual sales. The company’s reputation as a player in this 5G space was made as it revolutionized the digital storage industry by moving data at speeds way beyond expectations.
New markets are emerging in which Marvell has a first-mover advantage such as virtual reality, drones, data integration and consumer and industrial robotics. These are all huge markets, giving Marvell a long runway of growth. With seven out of the top 10 automotive original equipment manufacturers (OEMs) purchasing Marvell chips, the company is set for a solid growth trajectory in this market.
We believe Qualcomm
QCOM
(QCOM) is uniquely positioned to benefit as 5G goes mainstream, which is one of our key themes for 2022. In a highly positive FY21, Qualcomm benefited from multi-year licensing agreements and Snapdragon processor sales to major Asian handset makers, as well as continued momentum with Apple
AAPL
(AAPL).
Although Apple may in time seek to use its own 5G modems to displace Qualcomm chips, that change is not imminent. And while chip sales to Apple are meaningful, the licensing agreement with Apple in our view is the more important revenue and profit contributor.
Qualcomm — which has been in near-constant litigation in the two decades we have followed the company — has put all or most legal issues behind and can focus on leading the 5G market in a multi-year rollout.
We expect 5G to be a huge market driver and profitable revenue opportunity for Qualcomm, which brings existing market strengths into a maturing 5G device market. The broad ramp-up of 5G handsets that began late in 2020 should continue to gather momentum into calendar 2022 and beyond.
Jeffrey Hirsch, Stock Trader’s Almanac
We screen for reasonably solid valuations, revenue and earnings growth and relatively low price-to-sales and price-to-earnings ratios. Then we look for positive price and volume action as well as other constructive technical and chart pattern indications. Finally, we lean towards stocks flying under Wall Street’s radar with a below average number of analysts following them.
A10 Networks
ATEN
(ATEN) is leading provider of secure cloud application services and solutions for on-premises, multi-cloud and edge-cloud environments at hyperscale. The firm enables service providers and enterprises to deliver business-critical applications that are secure and efficient for multi-cloud transformation and 5G readiness.
Their products and services help future-proof infrastructures so their customers can provide the most secure and available digital experience. Their portfolio of state-of-the-art solutions optimize, accelerate, and secure applications and networks for enterprises, service providers, and government organizations. Growing both organically with existing clients and adding new business ATEN exhibits a strong balance sheet and solid growth potential.
Brett Owens, Contrarian Outlook
With fast internet speeds and 5G becoming inalienable American rights, American Tower (AMT) is our backdoor growth play. The company — a growth-oriented favorite for the coming year — is a landlord for mobile phone traffic, collecting rents via its 170,000 towers from carriers such as AT&T
T
(T) and Verizon (VZ). The more videos we watch from our phones, the busier the “roads” that AMT provides become. We can think of the firm as a toll bridge.
This company is a “pick and shovel” on broadband. The phrase “pick n’ shovel” dates back to the gold rush of the 1840s, when hordes flocked to California to get rich mining for the metal.
The guys who made the real money didn’t actually mine anything. They were the entrepreneurs who sold the “picks and shovels” as well as booze, “entertainment” and lodging to the hapless speculators.
We’re not peddling booze. Instead, we’re investing in the cell phone towers that AMT owns. This is a capital-intensive operation that provides the firm with a wide business moat. It also scales quite nicely.
Once AMT builds one tower, it can easily support an additional tenant or two. Check out the illustration below — it’s as simple as bolting some additional equipment on.
The return on investment (ROI) that AMT generates from a “one tenant tower” is just 3%. However, this jumps with each additional tenant, with ROI increasing to 13% for two tenants and an awesome 24% for three tenants!
Plus, this landlord is expanding its empire into data centers. AMT is acquiring CoreSite Realty
COR
(COR), a best-in-breed data center REIT. This is an intriguing extension for AMT as it plays “5G Monopoly.”
AMT is structured as a REIT (real estate investment trust), which means it pays out the majority of its profits to investors directly as dividends.
We’ve owned the stock in our Hidden Yields portfolio (my service dedicated to dividend growth) since late 2018 and have enjoyed 87% total returns. Our profits are largely thanks to the fact that AMT raises its dividend every single quarter.
The stock’s forward yield is listed at a modest 1.9%, but don’t be lulled to sleep. This dividend growing is growing by 15% annually — and this payout keeps pulling its stock price higher and higher.
Timothy Lutts, Cabot Stock of the Week
For aggressive investors, the technology industry has long offered the most exciting opportunities for rapid growth, as the world’s appetite for data transfer storage and analysis continues to grow.
Recent years have seen the cloud take center stage and Arista Networks
ANET
(ANET) is a play on that, as its equipment works at the edge of the cloud. Arista has always been a leader in this space, with multilayer network switches and software-driven networking solutions for cloud data centers and other (usually big) computing environments.
In the third quarter, Arista boasted eye-opening sales growth and deft supply chain management along with an enticing buyback program. The company reported estimate-beating revenue of $749 million, up 24% from the prior year and up 6% sequentially, with per-share earnings of $2.96 beating the consensus by 23 cents.
Management expressed confidence in the outlook by increasing its share repurchase program by $1 billion (worth 2.5% of the current market cap), as well as announcing a four-for-one stock split.
More important, Arista thinks the best is yet to come. Management sees 2022’s sales growth accelerating to 30% (up from 25%-ish this year), well above analysts’ expectations, and revenue expanding at a 15% compound annual rate in the next five years (reaching annual revenue of $5 billion by 2025) based on exploding demand from cloud computing customers.
As for the stock — which has been public since 2013 — the earnings report in early November sparked a big gap up, and the stock has been consolidating that gain since, building a base for the next advance. Aggressive investors can buy here.
Perion Network Ltd. (PERI) is poised to outperform in 2022. Based in Israel, Perion delivers advertising solutions to brands, agencies and publishers in North America, Europe and elsewhere around the world.
It provides Wildfire, a content monetization platform, search monetization solutions, actionable performance monitoring platform and a cross-channel social software as a service platform that lifts return on money spent on ads.
The company offer solutions in analytics for marketing campaigns on artificial intelligence (AI)-driven platforms that help define and optimize how content is created in order to have the highest level of impact on targeted consumers and business. Perion also markets tools to manage content on websites and for publishers that build websites.
Perion posted Q3 earnings per share (EPS) of $0.40. which beat estimates by $0.12 on revenue of $121.02 million (+45.1% year/year) that beat by $12.06 million. The company raised guidance for the fourth quarter and the full year.
In 2022, management expects to generate revenues of $455 million to $465 million (consensus: $438.29 million) and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $59 million to $61 million, vs. prior guidance of $415 million to $430 million and $50 million to $51 million, respectively.
Following a $100 million secondary stock offering on Dec. 8, shares of PERI are trading at $23. This is well off the recent high of $33, which was the product of a reaction to the standout earnings report. The stock is a fundamental and technical buy.
Bruce Kaser, Cabot Turnaround Letter
Nokia (NOK) — our top conservative idea for 2022 — has struggled for years to remain competitive in its core market of selling equipment to telecom network operators. Its early choice of using field programmable chips, as opposed to factory programmed chips, set back its 5G efforts by years. The result: weak revenues, thin margins, a bloated and misdirected expense base, and a leveraged balance sheet.
However, the arrival of new CEO Pekka Lundmark (March 2020) has brought the company back into the game. His strategy to invest heavily in research and development has restored Nokia’s technology competitiveness, which has helped the company return to positive revenue growth.
Better products and better spending control have boosted profit margins to 11%, attaining Lundmark’s targeted range of 10-13%. Nokia is generating sizable free cash flow and now has €4.3 billion more cash than debt. Lundmark is eliminating bad business practices like its selling of its receivables — a low-quality and expensive way to generate cash flow.
We anticipate that Nokia will restore its dividend and announce a share buyback program in 2022. Despite its progress and the likely continued ramp-up of 5G spending, investors continue to give Nokia little credit.
U.S. telecom company Verizon (VZ) is a Top Pick for 2022, especially for those seeking income; its mobile network is the largest wireless carrier in the United States, with about 121 million subscribers. Its cellular network serves over 91 million post-paid, 4 million prepaid, and 25 million data customers. Additionally, the company recently acquired Tracfone, adding another 20 million prepaid customers.
Verizon also owns the FiOS fiber network and has about 25 million fixed-line connections in the Northeast US. Verizon has an online media group from the acquisitions of AOL and Yahoo, which it may sell. Total revenue was $128,292 million in 2020 and $134,238 million in the last 12 months.
The company has performed relatively well during COVID-19 since consumers and businesses still require cellular and broadband services. In addition, demand from the work and play from home trend is still elevated, and more companies are moving to a hybrid work model. This change should keep demand for cellular and broadband services higher.
However, Verizon is one of the companies with a negative return (-7.0%) year-to-date in the Dow 30. The company faces increasing competition from cable companies trying to sell cellular service in limited areas and a refocused AT&T (T).
Notably, cable companies are now bidding at C-band spectrum auctions. Competition is also intense in broadband, where Verizon’s FiOS service overlaps with cable companies.
One risk is Verizon’s debt position was relatively conservative but is rising due to spectrum purchases. As a result, total debt has increased to ~$179 billion, and net debt is ~$168.8 billion. However, interest coverage is still about 8.9X, and the leverage ratio is 3.0X.
Despite the challenges, Verizon is positioned for growth. The company is rolling out its 5G offerings, including the faster mmWave technology called the 5G Ultra Wideband. Additionally, the company plans to roll out its C-band service after buying spectrum. In addition, Verizon is launching a fixed-wireless service that combines its fiber and latest wireless service.
Verizon’s dividend is secure with a payout ratio of about 48%. The stock is yielding approximately 4.9%, higher than the average in the past 5-years, making it attractive to investors seeking income. Verizon is undervalued, trading at a price-to-earnings ratio of ~9.7X versus an average of about 13X in the past decade. Investors are getting a deal, and I view the stock as a long-term buy.
Get the full report here and see why the nation’s leading investment experts believe these 118 stocks will significantly outperform the market in 2022.
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