These Stocks Will Drive the 5G Revolution

The long-awaited rollout of 5G, a technology that will rapidly boost wireless data speeds, has begun. There are myriad ways to play what many consider a revolution in telecommunications. These leading experts, and contributors to MoneyShow.com, highlight top investments in telecom, data storage, transmission and technology that are poised to benefit. Tim Plaehn, The Dividend Hunter Under the 4G system, mobile data has grown 17-fold over the past five years. The multitudes faster 5G wireless technology will start rolling out around the globe over the next few years. Verizon Communications predicts that 5G will allow data speeds up to 20 times faster than 4G. This means 20 as much data will be shared and much of it stored. The higher 5G speed will result in many more connections to the wireless network, including current wireline connected equipment and currently unconnected devices that will join the Internet of Things. Exponential growth of data sharing means similar growth levels required for data storage. The tech industry, really all industries, rely on data centers for data storage. These are dedicated facilities with specific design features to house servers, routers, switches, backup servers and the connections required so data can be transmitted, accessed and stored. In the current world these are very large, high-tech facilities with advanced cooling and power generation capabilities. Data center storage is a growth business. Data centers are a great, longer-term way to participate in both 5G and data storage requirements growth. There are a handful of real estate investment trusts (REITs) that operate exclusively in providing data center services to the tech sector and other industries. Here are three to consider. Equinix, Inc. is the $35 billion market cap, the large-cap standard of the data center industry. The company converted from corporate tax payer to REIT status at the start of 2015. The company is a colocation and interconnection service provider. Colocation is a data center facility in which a business can rent space for servers and other computing hardware. Typically, a colocation facility provides the building, cooling, power, bandwidth and physical security while the customer provides servers and storage. The company's services currently give 9,500 customers 300,000 interconnects between data centers and world's digital exchanges. According to the current Investor Overview presentation, Equinix owns over 200 data centers in 24 countries, on five continents. This is truly an international company. Over the last decade the company has produced in excess of 20% compounding annual revenue and EBITDA growth. This results in mid-teen per share cash flow growth. For 2019 the company forecasts 11% FFO per share and dividend increases. The shares currently yield 2.3%. Digital Realty Trust is a $24 billion market cap REIT that owns 198 data centers in 32 metropolitan areas. Digital Realty has over 2,300 customers. Like Equinix, Digital Realty is also a colocation and interconnection services provider. This REIT's customer list includes some of the largest technology and telecommunications companies. In the top 10 are IBM , Oracle , Verizon, Linked In, and even Equinix. According to the current investor presentation, Digital Realty has grown FFO per share for 13 straight years. Over that period cash flow to pay dividends has grown by a compounding 12% per year. The DLR dividend has grown by 10% plus per year for the last decade. The shares currently yield 3.8%. CoreSite Realty Corp. is a $3.9 billion market cap REIT that owns 22 data centers in eight strategic U.S. cities. The company's focus is to provide colocation services to enterprise, network, and cloud services companies. The company has over 1,300 current customers. CoreSite is the high growth, higher risk company out of the three covered here. Since 2011, FFO per share has grown by 23% compounded and the dividend by more than 30% per year. Future results will cycle from relatively flat to high growth years. An investment in COR will not be as stable as with the large cap data center REITs. The flip side is the potential for large dividend increases and corresponding share price gains. Meanwhile, the shares currently yield 4.4%. Roger Conrad, Conrad's Utility Investor In the hyper competitive U.S. communications sector, money is the difference maker. Last year, Verizon Communications spent $16.7 billion on network, and it plans to dish out another $17.5 billion this year. The company recently sold $1 billion in 10-year green bonds at a cost that was 14 percent lower than expected. That's just the latest demonstration of this company's superior access to capital, even as it generates $18 billion in free cash flow this year, or twice its total dividends. That's a critical advantage in the race to deploy America's first true 5G communications network, capable of providing revolutionary applications and services at many times the speed of today's 4G wireless networks. Verizon successfully conducted edge computing tests that halved network latency, which is the time it takes for information to make a roundtrip. That's a critical advance for remote control of transportation, as well as data processing and Automated Intelligence enabled facial recognition. To date, the company's rivals have basically asserted their networks will be just as good even after 5G. We heard the same thing earlier this decade when Verizon beat everyone to 4G, thereby firmly establishing market leadership. And CEO Hans Vestberg has focused the company squarely on being first and best this time around. I'm most impressed by the fact Verizon hasn't had to sacrifice its present for the future. Last year while out-investing everyone in 5G, the company cut debt by $5.2 billion, raised dividends 2.2 percent and beat earnings per share guidance with a 25.9 percent boost. In addition, Verizon added 1.2 million wireless customers and held postpaid phone churn to an industry low 0.82 percent. It added 54,000 broadband FiOs customers, stayed on track for $10 billion in cost savings by 2021 and reset its lagging media operations. The upshot is the highest percentage bet on U.S. communications' future is also a solid current value proposition, yielding nearly 5 percent and selling for around 11.5 times expected 12 months earnings. Lock away this stock whenever it's below our target of $55. Keith Snyder, CFRA Research With all four major carriers deploying 5G networks over the next two years, a significant amount of capital will be invested in upgrading existing radio access network (RAN) equipment on towers while also deploying a large number of small cells throughout urban markets to facilitate both the growth in device connections as well as the rapid increase in network data traffic. New technologies expected to be deployed in 5G networks, such as edge computing, will likely create new revenue opportunities for tower operators, while growth in the number of antennas deployed on each tower could push rental revenues up. We think the leading tower operators will benefit from 5G deployments, as the limited availability of new towers will increase the number of tenants, while a push to deploy small cells will create new market opportunities. American Tower Corporation is one of the largest global REITs and a leading independent owner, operator and developer of wireless and broadcast communication real estate. Its portfolio includes more than 170,000 communications sites, including roughly 41,000 in the U.S. and more than 129,000 internationally. We view the revenue stability as a strong positive for the company as lease contracts are typically non-cancellable, with an initial term of five to ten years and annual lease escalators in the U.S. fixed at an average of approximately 3% and based on local inflation rates in international markets. In addition, in the U.S., more than 71% of sites are on owned land or have a ground lease with at least 20 years until renewal. We see AMT's international footprint as a strong positive for the company, while its cash flow will enable it to continue to purchase assets strategically. John Eade, Argus Research Technology has always been a disruptive force in the broad economy, but the emergence of key technologies -- including cloud IaaS, big data, social, mobility, machine learning, and artificial intelligence -- is shuffling the deck of industry leadership in the technology space. A new factor on the scene is 5G wireless -- still in early days, but poised to reshape data access and traffic in coming years. When it arrives -- maybe as early as 2020 -- 5G will offer users greater speed, greater capacity, reduced latency and lower battery consumption. 5G should provide more-consistent connectivity and allow simultaneous connections to work together. We see several categories of beneficiaries: Infrastructure as a Service (IaaS): IaaS is a form of cloud computing that provides virtualized computing resources over the Internet. The cloud providers host infrastructure components traditionally present in an on-premises data center, including servers, storage and networking hardware, as well as billing, monitoring and security and back-up. 5G will make these services even more attractive. The leaders are Amazon and Microsoft . Cloud Management: ServiceNow provides cloud-based software-as-a-service (Saas) management applications to automate and track workflows across the enterprise, including IT, human resources, facilities, and field service, among others. Test & Measurement: Viavi Solutions core business is network and service enablement, which includes test & measurement, network visibility, service assurance, and related capabilities. Network Development: Ciena Corp. is a network developer. Two of its top three customers are AT&T and Verizon . Cisco Systems is a worldwide leader in communications equipment. Originally created to provide routers and switches for Ethernet-based networks within enterprises, the company has expanded into collaboration, data center, security, wireless, analytics and other hardware and software niches. Software Development Kits: Twilio provides a cloud-based communications platform that enables businesses to embed messaging, voice, video, and authentication capabilities directly into their software applications. Connectivity: Broadcom has a strong position in data center at a time when both small enterprises and cloud titans are building out their data management capabilities. Qualcomm has extended its leadership in the 3G CDMA wireless standard into the 4G LTE niche. It derives substantial royalty and licensing revenue from its extensive intellectual-property portfolio for 3G, 4G and now 5G technologies. IoT Services: Industrial companies such as Honeywell , Emerson Electric and General Electric are beginning to roll out IoT services that stand to become more robust and valuable as 5G is launched.

These Stocks Will Drive the 5G Revolution

There are myriad ways to play what many consider a revolution in telecommunications.

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