3 5G stocks to buy now before they go up

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The next generation of wireless networking technology, 5G, is rapidly expanding around the world. In fact, dozens of countries have now rolled out 5G, and some estimates indicate that these next-generation networks will reach 1 billion users worldwide by 2024.

But wireless service providers are highly regulated and are quickly becoming a utility-type business model. The most profitable way to invest in 5G has been with companies developing the hardware and use cases for the technology, and they’re poised to continue delivering strong returns over the next few years. that’s why Qualcomm (QCOM 1.30% ), Broadcom ( AVGO 1.67% )and Marvell Technology Group ( LRVL 0.95% ) look like good buys right now.

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1. Qualcomm: 5G is much more than smartphones

Mobile chip design leader Qualcomm was one of the biggest beneficiaries of the mobility movement of the 2000s and 2010s. Almost every smartphone on the planet is powered by a Qualcomm chip, and the bread and butter company Butter Company continues to do great things. As 5G has sparked an upgrade cycle among consumers, Qualcomm expects its smartphone sales and RF Front End (the semiconductors that allow a device to receive a wireless network signal) increase by an average of 12% per year until 2024.

But 5G will not only be a growth driver for smartphones. Many other devices will also benefit from 5G, as many consumers turn to mobile wireless as their primary internet service provider. Smart home devices and laptops are increasing 5G adoption. The Industrial Internet of Things (IoT) is also proliferating, as large enterprises use mobile technology to connect large numbers of smart devices to a network for greater efficiency and better control of work.

Then there’s Qualcomm’s fledgling automotive segment, which is on track to surpass $1 billion in annual sales for the first time this year. Qualcomm is using its know-how in smartphones to create an end-to-end platform for the modern vehicle, encompassing everything from the infotainment system in a car to advanced driver assistance systems (and perhaps a fully autonomous driving cars) to vehicle connectivity. with a mobile network. In five years, Qualcomm thinks its automotive business could bring in $3.5 billion a year.

After pulling back from recent highs, Qualcomm shares are now trading at just 18 times trailing 12-month earnings (or 24 times trailing 12-month free cash flow). Highly profitable and growing sales at a healthy double-digit percentage, Qualcomm’s stock deserves some love right now.

2. Broadcom: These profit margins are no joke

Broadcom may not be the commonly recognized name for Qualcomm, but it is no less a dominant company in the semiconductor industry. As the name suggests, Broadcom specializes in all manner of communications hardware, from data center equipment to wireless chips to optical networking hardware. When it comes to 5G, Broadcom designs chips for 5G network infrastructure (like small cells that generate a wireless signal) to smartphone circuitry that enables 5G and WiFi connectivity.

As a large tech conglomerate, Broadcom isn’t the fastest growing company. Even with a global shortage of chips keeping demand (and therefore the prices of chips sold) high, Broadcom’s semiconductor revenue grew 20% year-over-year in the first quarter. in fiscal 2022. Many peers reported sales well above that. Additionally, the enterprise software segment (including network monitoring and security services acquired by Broadcom in recent years) grew by only 5%.

However, what Broadcom lacks in meteoric revenue growth, it more than makes up for in profitability. The company generated free cash flow of $3.39 billion — a free cash flow profit margin of 44%! Almost all of this excess cash is returned to shareholders each quarter through a dividend and share buybacks. Regarding share buybacks, the board authorized a $10 billion plan in December, valid until the end of 2022, and $2.7 billion of this authorization was repurchased at the end of 2022. course of the first trimester.

Generating huge sums of money, Broadcom is a go-to business in the world of 5G and communications technology in general. The shares trade for 34 times trailing 12-month earnings (19 times trailing 12-month free cash flow). A 2.7% dividend yield, one of the best in the industry, sweetens the deal.

3. Marvell Technology Group: An Emerging Leader in Data Management

2021 has been a busy year for Marvell Technology. It acquired cloud data center switch provider Innovium and then optical networking company Inphi. Combined with Marvell’s existing portfolio of hardware designs addressing the high-speed movement of data, the new company is poised to become a key player in 5G and data center construction.

It’s still early days for Marvell post-acquisition, but the merits of expanding its portfolio of offerings were exposed in its Q4 2021 update. Revenue rose 11% sequentially to 1. $34 billion, and the outlook for the first quarter of 2022 implies a further sequential increase in sales of more than 6% amid management guidance. With a silicon lineup stronger than ever, the company reports a strong portfolio of design gains as its customers implement more of its hardware into their plans.

5G and adjacent technology areas like cloud and data centers are expected to be a strong driver of Marvell’s growth over the next few years. Cloud and mobile network services that use 5G are on the rise, and Marvell’s high-performance computing, data movement and data management hardware is well suited to handle the faster network speeds of 5G technology. Some of these same designs are also used in automobiles (much like Qualcomm’s mobile chips), as the modern vehicle is rapidly transforming into a network-connected data center on wheels.

Granted, investors looking for “cheap” 5G stock won’t find it here. Marvell is currently operating in the red (although its free cash flow is positive) due to its large purchases in 2021. In the years to come, the company will turn a corner and turn a profit again. In the meantime, however, the stock is trading at almost 90 times the free cash flow of the past 12 months. Still, with data consumption rapidly increasing due to the rollout of the 5G network, Marvell deserves some serious consideration right now.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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