At the end of January, I recommended that investors looking to avoid the “dizzying valuations” that many tech names had reached consider fiber optic names, which could also be classified as 5G stocks.
I pointed out that, “In a sense, the fiber optics sector is an obscure group within a partially forgotten catalyst” of 5G.
About two weeks after my column was published, many of the high-flying tech stocks started sinking. As I note below, however, all three of the 5G stocks I recommended have held up rather well during the tech downturn.
I’m also adding one additional stock to my list.
Here are four 5G stocks worth considering at the moment.
According to JPMorgan analyst Samik Chatterjee, Lumentum’s fiscal second quarter results featured “better than expected results in telecom/datacom.” Indeed, Lumentum reported that its optical communications revenue increased 5% versus Q1 and 10% year-over-year, suggesting that the company continue to benefit from the expansion of 5G and that it remains one of the top 5G stocks.
Lumentum’s overall fiscal Q2 revenue was more or less in-line with analysts’ average estimate, while its EPS came in 8 cents above the mean outlook. Additionally, JP Morgan’s Chatterjee said its Q3 outlook indicates that its Q3 sales will be at least equal to the average estimate.
LITE stock has been relatively weak in recent weeks because the company is engaged in a bidding war over a smaller laser maker, Coherent (NASDAQ:COHR).
Over the longer term, however, an acquisition of Coherent would meaningfully increase Lumentum’s revenue from selling products for Apple’s (NASDAQ:AAPL) iPhone, likely proving to be positive for LITE stock.
By tech standards, Lumentum has a tiny forward price-earnings ratio of 15.75.
In Q4, the revenue of the company’s Broadband Networks unit, which includes much of its fiber businesses, jumped 17% year over year. That increase suggests that the company is indeed benefiting a great deal from the 5G revolution.
Overall, amid the difficult comparison caused by the novel-coronavirus pandemic, Commscope’s Q4 revenue fell 7% YOY. However, the company’s profitability jumped, as its EBITDA, excluding some items, climbed nearly 12% YOY.
As I pointed out in my previous column, “On Dec. 11, JPMorgan upgraded COMM stock to ‘overweight,’ citing its exposure to 5G and broadband upgrades. The firm increased its price target on the name to $18.”
COMM stock has been very resilient during the tech pullback; the shares are up about 4% since Feb. 11. Incredibly, the stock’s forward P/E ratio is below 10.
On March 4, Ciena reported better-than-expected results for its fiscal Q1.
On a negative note, its EPS, excluding certain items, was little changed YOY, while its top line fell 9% YOY. As I noted earlier, however, last quarter was a tough comp for the sector due to the pandemic.
Additionally, Ciena’s operating margin, excluding certain items, rose to 14.6% in Q1 versus 13.1% during the same period a year earlier.
Citing third-party reports, Ciena says that it’s the top optical networking vendor globally for internet content providers, the leading company globally for providing data center interconnectivity, and the top firm in North America when it comes to “total optical networking.”
CIEN stock is up slightly since mid-February, and its forward P/E ratio is an affordable 19.
Crown Castle (CCI)
According to Investor’s Business Daily, the company develops “radio antennas for 5G services in urban areas.” Rysavy Research estimated “that there will be 1 million U.S. outdoor small cells by 2028, up 10 times from today’s levels. ”
By signing a deal with Dish Network (NASDAQ:DISH), which intends to begin building a 5G network towards towards the end of this year, Crown Castle has left itself well-positioned to get a big lift from 5G in the near-term.
Under the agreement, Crown Castle will provide Dish with “up to 20,000 towers” and fiber services Dish refers to it as “the anchor infrastructure partner on the tower side.” And analysts have said that Crown Castle’s elevated ratio of urban towers makes it appealing to content providers like Dish.
CCI stock has a 3.2% dividend yield, and its shares have jumped 12% since March 8. The stock has a forward P/E ratio of 68, but I think, given the company’s deal with Dish, the dividend, and the stock’s recent momentum, the shares are still worth buying.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GM, GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.