The 5G revolution is making its way around the globe. And with businesses increasingly adopting technology-based solutions, the 5G revolution could also play a crucial role in increasing business opportunities exponentially. That’s because this technology comes with reliability, super-fast speed, massive bandwidth, and low latency. The global 5G technology market is expected to grow at a CAGR of 70.83% from 2020 to 2025.
But despite the industry’s solid growth prospects, fears of rising inflation, rising Treasury yields and attractive opportunities to gain from cyclical stocks amid the economic recovery have led to many 5G stocks losing some value as part of the broader technology industry correction.
Consequently, two mega players in the 5G space, Intel Corporation (INTC) and Telefonaktiebolaget LM Ericsson (ERIC), are currently trading at significant discounts to their peers. Given their fundamental strength and ability to capitalize on the industry’s growth prospects, we think these stocks could be solid bets now.
Intel Corporation (INTC)
One of the established players in the technology space, INTC designs, manufactures, and sells essential technologies for the cloud, smart, and connected devices for its consumers across various sectors, such as retail and industrial. The company’s segments include its Data Center Group (DCG), Internet of Things Group (IOTG), Mobileye, and Non-Volatile Memory Solutions Group (NSG).
INTC launched its new 11th Generation Intel Core H-series mobile processors on May 11, led by the flagship Intel Core i9-11980HK—the ‘World’s Best Gaming Laptop Processor’ on May 3. Because the demand for gaming and remote working is expected to continue to increase in the foreseeable future, INTC is expected to benefit for the foreseeable future.
For its fiscal first quarter, ended March 27, 2021, INTC’s non-GAAP revenue came in at $18.57 billion, which exceeded January guidance by $1.10 billion. Its revenue from its Mobileye segment increased 48.4% year-over-year to $377 million, while its revenue from its adjacency segment increased 33% year-over-year to $753 million. The company’s non-GAAP EPS came in at $1.39, which exceeded its January guidance by $0.29.
Its EPS is expected to grow at a 5.4% rate per annum over the next five years. INTC surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 17.4% over the past nine months to close Friday’s trading session at $57.85.
In terms of forward Price/Cash Flow ratio, INTC’s 7.68x is 67.4% lower than the 23.54x industry average. In terms of its forward GAAP P/E ratio also, the stock’s 14.13x is 56.8% lower than the 32.74x industry average.
INTC’s POWR Ratings reflects this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Value, and a B grade for Quality. Within the B-rated Semiconductor & Wireless Chip industry, INTC is ranked #19 of 98 stocks.
To see the additional POWR Ratings for INTC (Growth, Sentiment, Momentum and Stability), click here.
Telefonaktiebolaget LM Ericsson (ERIC)
Headquartered in Stockholm, Sweden, ERIC together with its subsidiaries, provides communication infrastructure, services, and software solutions to the telecom and other sectors. It operates through four segments: networks, digital services, managed services, and emerging business. Its emerging business segment includes Internet of Things; iconectiv; Cradlepoint; and Red Bee Media.
On June 1, 2021, ERIC launched Ericsson Private 5G, which offers secure and simple 4G LTE and 5G Standalone (SA) connectivity targeted primarily at the manufacturing, mining and process industry, offshore and power utilities, and ports and airports. This offering could lead to an increase in demand for ERIC’s offerings in the coming months.
ERIC’s sales adjusted for comparable units and currency increased 10% year-over-year to SEK49.8 billion ($5.98 billion) for the fiscal first quarter ended March 31, 2021. Its EBIT grew 22% year-over-year to SEK5.3 billion ($636.66 million). Its net income increased 39% year-over-year to SEK3.2 billion ($384.40 million). Also, its EPS came in at SEK 0.96 ($0.11), up 48% year-over-year.
For the quarter ending June 30, 2021, analysts expect ERIC’s EPS and revenue to increase 40% and 19.9%, respectively, year-over-year to $0.14 and $6.67 billion. It surpassed consensus EPS estimates in three of the trailing four quarters. The stock has gained 50.5% over the past year to close Friday’s trading session at $13.18.
In terms of forward EV/Sales ratio, ERIC’s 1.47x is 66.2% lower than the 4.34x industry average. And in terms of forward Price/Sales ratio, the stock’s 1.52x is 62.9% lower than the 4.09x industry average.
ERIC’s POWR Ratings reflect solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system. It has an A grade for Value, and a B grade for Stability and Sentiment.
Click here to see the additional POWR Ratings for ERIC (Growth, Momentum and Quality).
ERIC is ranked #4 of 56 stocks in the B-rated Technology – Communication/Networking industry.
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INTC shares were trading at $57.74 per share on Monday afternoon, down $0.11 (-0.19%). Year-to-date, INTC has gained 18.01%, versus a 13.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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