Everyone hates their cable company and their wireless company. When we used to have home phones, we hated Ma Bell, too… everyone who has a monopoly or near-monopoly and uses that to keep prices and profits high and customer service low gets ranked pretty far up the “hate” list, whether its the airlines or the telecom utilities, and sometimes companies pop onto the list for a year or two for other reasons (Equifax or Facebook for data transgressions, The Weinstein Company for making us feel slimy just for hearing Harvey Weinstein’s name, the Trump Organization and Fox Entertainment for political reasons), but it’s traditionally the cable companies who sit in “most hated” position.
And today Jason Stutman says the “clock is ticking” for Comcast particularly, which often leads the “most hated” list — so why is that the case, and who will be the beneficiaries? Let’s check out the ad….
“Let’s face it: Cable companies suck.
“Everyone hates them. And it’s been that way for years…
“In 2012, Cox was one of the 15 most hated companies in the U.S.
“In 2014, Comcast was voted the “Worst Company in America.”
“In 2015, Time Warner received the lowest American customer satisfaction index (ACSI) score in history.
“And it’s no secret why…
“… 90% of Americans only have one option when it comes to receiving standard internet speeds.
“But a massive technological shift is coming…
“One that’s about to sound the death knell for some of America’s most hated companies.
“And this shift, the one that will replace 4G with 5G, could hand you the easiest guaranteed payouts that you’ll ever receive.”
OK, so this is a 5G story — probably one of many we’ll see over the next two years as the next generation of wireless begins to get rolled out to cities across the US. How is it that Jason Stutman thinks we’ll be making money from this transition?
Here’s how he puts it:
“4G is what most of us use today.
“It has a theoretical download speed of 100 megabits per second (Mbps.), which is pretty fast.
“But it won’t be able to hold a candle to 5G.
“5G will be able to handle 10,000 Mbps., which is 100 times faster than 4G on its best day.
“It’s why many in the industry, including me, refer to it as the ‘ultranet.’
“And it’s coming this year.
“And that means, if you position yourself properly, you’ll be in line to earn an unending series of guaranteed payouts and potentially pull in gains of 300%, 500%, and even upward of 1,500%.”
He talks for a bit about the huge profits that might have been made if you had invested in critical stocks before past “generations” in mobile telephony — from the big moves by Motorola and AT&T in the late 1980s and early 90s with “1G” phones, to Sprint and Ericcson’s moves a few years later with 2G or Qualcomm and Broadcom with 3G starting almost ten years ago, or the 4G moves close behind that as those stocks and the tower companies started go benefit from ever more adoption, more antennae and towers, more chips and more data.
More from the ad:
“And today is no different, except that it’s much, much bigger than anything we’ve seen before.
“Because this time around, it won’t be just phones…
“Tens of billions of devices will rely on 5G to function.
“It’s 100% essential to the future of tech. And there are three major industries that will be driving 5G stocks to dizzying heights…”
As you might guess, those three “major industries” are the Internet of Things, which will depend on 5G to grow faster and allow massive amounts of processing of data from tiny and relatively “dumb” sensors and machines; Self-driving cars, which will likely have to do much of their processing and communication with other cars in a 5G-enabled wireless “cloud”; and Virtual Reality/Augmented Reality, which relies even more heavily on fast speeds and massive data transfers than video (which, if you remember, used to be almost impossible to “stream” as recently as 3G or even early 4G).
So that’s the backdrop… what are the stocks? There are apparently three of them that Stutman is betting on, here are some hints:
“5G Stock No. 1: Guaranteed Profits From the ‘Death of Comcast’
“In a few months, we’ll see 5G being deployed in California’s capital — Sacramento.
“It will be the first city with widespread 5G support in what Maria MacGunigal, Sacramento’s chief information officer (CIO), calls a ‘game-changer’ ….
“There are 10 other cities that have been chosen to quickly follow Sacramento as 5G pioneers.
“And the best part is, the first company that I’m sharing with you today is in charge of EVERY one of these installations.
“In fact, this company just dropped $1.05 billion to ‘reinvent’ its own network ahead of the 5G bonanza that will begin later this year.”
Thinkolator sez: This is another of the country’s most-hated stocks, Verizon (VZ), which is indeed rolling out 5G household broadband in Sacramento and, shortly thereafter, ten other cities.
The $1.05 billion is a reference to their deal with Corning last year to buy a lot more fiber-optic cable over the next couple years, which they need both for their FiOS network and to provide a more robust physical network to support 5G. The promise is that their 5G implementation will be able to deliver fiber-like speeds wirelessly, though I guess we’ll see how the real world application goes.
And Verizon, of course, is huge… the market cap is close to $200 billion (with another $120 billion in debt), so it’s not a particularly secret or unknown company — which is probably good, because the rollout of 5G will be extraordinarily expensive as Verizon and AT&T and everyone else tries to be early and take market share for next generation wireless services as the national standards get finalized.
The stock is right around the midrange where it has traded over the past five years, in the high $40s, and it tends to act a lot like a utility much of the time, but it is certainly likely to be one of the leaders of 5G, even if that means it will probably need to put even more debt on the balance sheet in the years to come. And it does pay a strong dividend (nearly 5% right now). I would expect the service providers and chipmakers and equipment companies to have more direct exposure to 5G over the next couple years, but Verizon is also probably a rational lower-volatility choice, particularly for income investors — and it’s much closer to being a “pure play” on wireless than its major US competitor, AT&T (T), which also owns the cable competitor DirecTV and, thanks to their court victory this week, will soon own the huge studio and content creation colossus Time Warner.
What’s next? This one sounds a bit smaller…
“5G Stock No. 2: The $3 Company Redefining Wireless
“The second company that I’d like to share with you already has some of the biggest telecom companies in the world — like Verizon, Sprint, AT&T, and T-Mobile — clamoring for its wireless products.
“It’s even inked a deal with the U.S. Army.
“On top of that, it’s already secured $100 million worth of orders from first-tier Indian telecom operators.”
OK, color me intrigued… any other clues?
He says this is “the No. 1 5G wireless backhaul specialist.”
“It’s been in business for more than 20 years and has a long track record of being involved in huge technological advances.
“In all, the company has more than 2,000 customers already. And it’s deployed more than 1 million systems since it started operation in 1996.”
So… hoodat? Thinkolator sez: Ceragon Networks (CRNT)
Which I have never heard of, so I can at least say I learned something new today. Ceragon is indeed small, with a market cap around $380 million at the current $3.80 share price. And they’re profitable, with a trailing PE of about 17 — analysts don’t forecast any earnigns growth this year, so the forward PE is also 17, but they do see 2019 earnings popping up by about 20%, so that’s a good sign… though there are only two analysts covering this little guy, and the stock is right at their target price (one rates it a hold, the other “outperform”), so the analyst coverage probably doesn’t mean much at the moment.
This is how Ceragon describes itself:
“Ceragon Networks is the #1 wireless backhaul specialist. We help operators and other service providers worldwide increase operational efficiency and enhance end customers’ quality of experience with innovative wireless backhaul solutions.”
They do have an investor presentation which you can see here, so that’s a good place to start for the shiny happy version of the company’s strategy and performance. They do have an impressive roster of clients, many of the big telecom companies around the world, including that big chunk of business in India as well as pretty strong sales into Sprint and AT&T and others in the US, and they do claim to be well-positioned to support 5G rollouts.
I don’t have any outside perspective on this one, but it’s an interesting story and they’ve been growing slowly for a while now, so it might be worth some time spent on research if you’re interested in a telecom services company. Presumably the 5G “story” or newsletter attention is helping the stock to surge recently, they had a strong quarterly report in early May that was clearly well-received and helped the stock up immediately, but it has also kept surging since then, rising another 30% in the past month. The stock has a history of being quite volatile, so this one’s probably not for the faint of heart — though they do have a good balance sheet, so they don’t appear to be in any fundamental danger.
One more? I thought you’d never ask!
“5G Stock No. 3: The Small Cell Kingpin Set to Go Parabolic….
“According to Wells Fargo Managing Director Jennifer Fritzsche: ‘While we saw some early carrier interest and activity building small cells… we believe 2018 to really be [the] year where small cells are pursued in earnest.’
“And one company has a stranglehold on the competition…
“This company already has a deal in place with an unnamed wireless operator to deploy over 500 small cell sites in two large metro areas.
“It’s all part of a multimillion-dollar deal that includes citing, placement, and installation.
“And that’s not the only project these guys are in on…
“Sprint Chief Technology Officer (CTO) John Saw noted that he’s ‘working aggressively’ with this company to upgrade Sprint’s network ahead of the massive 5G launches coming later this year.
“And Verizon is a top customer, as well.
“The company that I’m telling you about has several multiyear contracts with Verizon. And it’s on the brink of bringing in huge business from AT&T.”
This one is another stock I’ve never looked at before, Zayo (ZAYO), which is much larger and provides fiber optic infrastructure, including in support of the small cells that will be used by 5G (which requires lots more transmitters/antennae, each of which is smaller and closer together than conventional 4G/LTE wireless antennas).
And, as luck would have it, one of the “best of” newsletters, Cabot’s Wall Street’s Best Investments, featured ZAYO as a pick from Stutman’s newsletter last month, so you can see a bit more of his actual commentary here.
Zayo provides a lot of dedicated networks for other companies, mostly based on its large fiber optic installed base, and it’s a pretty big company (market cap near $8 billion), but it’s also in the middle of what is expected to be a fairly weak earnings year — they are dropping, analysts say, from 41 cents in earnings per share in 2017 to an estimated 31 cents this year, even with pretty substantial near-20% revenue growth… though the expectation is that growth comes back over the next couple years. So the forward PE on 2019 estimates is a pretty steep 85, but those earnings are expected to grow.
Why would you pay that much for this company? I guess you’d have to assume that they are going to grow the business more quickly than the analysts thing, perhaps because of that small cell rollout for 5G, or because 5G will make their fiber networks ever more valuable. That doesn’t appear to be the consensus at this point, and they have both huge depreciation charges and large capital expenditures that make the earnings look less impressive, but they do, at least, also generate a fair amount of cash — their free cash flow for the trailing year was 70 cents a share, far better than the 25 cents in earnings, so that’s at least one sign of some underlying cash-generating strength that might make the stock appealing despite the low earnings numbers.
Will these stocks make you rich in the next year? Probably not, but they are real companies with at least some growth, and they’re all profitable, which you can’t say about every “story” stock. There’s also a chance that the “5G story” will heat up, too, and drive a lot of the associated stocks higher — and these three companies are all, at least, honestly connected to the 5G rollout.
Have a favorite? Think they all stink? Other ideas in 5G that you think will do better? Let us know with a comment below… thanks for reading!