This week’s federal court decision to allow the T-Mobile (TMUS)/Sprint (S) merger to go through has reignited select areas of the market that will be positively impacted by the boost in 5G adoption in the U.S.
This is because the judge who presided over the decision mandated that T-Mobile (TMUS) provide 5G coverage to over 97% of the U.S within 3 years and 99% coverage in 6 years. This is big news, particularly for rural areas, and while the expanded coverage may seem like a long way off, certain groundwork must be laid over the near term to ensure completion.
DAILY CHART OF CROWN CASTLE INT’L CORP. (CCI)
One of the first necessary components in bringing 5G to the masses is the buildout of cell towers into currently uncovered areas. Most of the needed cell towers are managed and leased by large Real Estate Investment Trust companies (REITs) such as Crown Castle Int’l Corp. (CCI), shown above.
CCI currently leases over 40,000 cell towers while operating 75,000 miles of fiber cable, which are crucial to handling the increased speeds of 5G networks. The company is in a position to continue growing at a healthy pace; management has suggested that, over the long term, they may be able to grow their dividend to as high as 8%, a significant increase from its current 4.6% annual yield.
As you can see, the stock gapped up following news of the large Telecom merger and has continued to climb. CCI is currently extended on its daily chart with an RSI that’s overbought. That said, given the powerful momentum, I’d expect more upside over the very near term before a period of consolidation that may provide a better entry point.
DAILY CHART OF INTEL CORP. (INTC)
While Telecommunications REITs such as Crown Castle will provide the base stations for the expanded 5G networks, there will be a need for semiconductor chip technology to power these bases.
That’s where well-known company Intel (INTC) will come in. INTC has developed a 10-nanometer Snow Ridge chip system that’s already been well received by 2 large telecom equipment manufactures with whom they’ve secured contracts. By 2022, Intel forecasts having a 40% market share.
In the chart above, you’ll see that Intel was already boosted into an uptrend following the company’s release of strong earnings and sales during their 4th quarter. While growth was due to Semiconductor chip sales in the PC and data center areas, by 2020, they forecast having a 40% market share of the telecom industry.
The stock is bullishly finding support at its upward-trending 10-day moving average as it consolidates its recent gap up in price. A breakout above $69.3 on volume would be even more bullish for the near-term prospects.
DAILY CHART OF NXP SEMICONDUCTOR (NXPI)
Last up is NXP Semiconductors (NXPI), which has pivoted business towards the 5G market over the last few years. The Dutch company is the c0-inventor of near-field communication technology, which enables mobile phones to be used to pay for goods. Faster 5G networks will only spur the use of their NFC chips and the company is well-positioned to take advantage. NXPI reported earnings earlier this month that were ahead of estimates.
I’d like to have seen more volume on its recent 3-week base breakout, but, with a 56% annual EPS growth rate projected for this year, I’d be a buyer of the stock if it were to show an increase in volume while continuing to trend higher.
Each of the 3 stocks in this article was carefully curated by reviewing the components needed to build out a 5G network that’s due to double its capacity in the U.S. From there, I chose select stocks with higher-than-average growth prospects with attractive charts.
If you’d like to receive stock ideas culled from a similar process in other growing areas of the economy, I urge you to trial my bi-weekly MEM Edge Report for a nominal fee. In addition to buy and sell recommendations, you’ll also receive in-depth insights into the various sectors of the market not found elsewhere.
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Mary Ellen McGonagle,
About the author:
Mary Ellen McGonagle is a professional investing consultant and the president of MEM Investment Research. After eight years of working on Wall Street, Ms. McGonagle left to become a skilled stock analyst, working with William O’Neill in identifying healthy stocks with potential to take off. She has worked with clients that span the globe, including big names like Fidelity Asset Management, Morgan Stanley, Merrill Lynch and Oppenheimer.