J.P. Morgan: 2 5G Stocks to Consider (And 1 to Avoid)

The late, great, Neil Peart wrote, in Tom Sawyer, “He knows changes aren’t permanent, but change is.” His words are an apt description of our modern world, an ever-changing landscape of pending tech. Right now, the shiny new change is 5G.

Even the coronavirus couldn’t fully derail the coming build-out of the new 5G networks. It only delayed it. China and Korea are leading the world right now in bringing 5G networks online, with the US expanding its own new systems and Europe lagging behind. In the US, most urban areas have at least partial 5G connectivity online, and the major service providers are working to connect those centers.

For investors, the key here will be finding companies that are primed to gain as 5G expands. Investment bank JPMorgan has taken note, and tapped two tech companies that stand to gain big as 5G systems emerge more and more into the mainstream – and to balance the books, JPM has also tapped one company to avoid.

Using TipRanks’ Stock Comparison tool, we lined up the three alongside each other to get the lowdown on what the near-term holds for these 5G players.

Qualcomm, Inc. (QCOM)

JPM’s first thumbs up is for Qualcomm, a major name in the semiconductor chip scene. QCOM is consistently among the largest chip makers by total revenues, and kept that up heading into the corona crisis. Qualcomm’s 2019 sales totaled more than $24 billion, with a net profit of $4.4 billion.

Qualcomm is taking a proactive stance toward 5G, creating and marketing a variety of chipsets for the new tech. The company has a range of speeds available for mobile platform processors and PC, along with specialized chips for the automotive market. Strong sales in 5G chips have helped the company’s bottom line; Qualcomm beat the Q2 earnings forecast by 16%, and is projected to see a sharp gain in Q3.

Covering the stock for JPM, 5-star analyst Samik Chatterjee wrote, “[We] believe Qualcomm’s leadership in 5G technology in conjunction with the upcoming ramp in 5G smartphones… is going to lead to expectations for a bull case around potential Qualcomm 5G shipments to Huawei in the future to support its smartphone launches… we expect it to drive a multiple re-rating as well to reflect the improved positioning in the 5G landscape…”

Chatterjee’s Buy rating is supported by a $120 price target and a projected 9% upside to the stock. (To watch Chatterjee’s track record, click here)

Overall, QCOM’s Moderate Buy consensus rating is based on 21 analyst reviews, including 13 Buys, 7 Holds, and 1 Sell. Shares in the chip maker are selling for $109.70, and the average price target, $117, suggests a modest upside of 6%. (See Qualcomm stock analysis on TipRanks)

Qorvo, Inc. (QRVO)

Qorvo is a another chip maker but a rung down in size. Qorvo boasts a $14.5 billion market cap and a leading position as a provider of quality networking chipsets. Qorvo chips are found in most devices with a mobile wireless capability, including laptops, smartphones, and tablets. The company round out its product lines with chips for older – but still useful tech – such as cordless phone and industrial radio.

All of these devices are touched by 5G networks, and Qorvo is positioning itself to provide chips in the essential base station market. The company is already a leader in RF chips for 2G, 3G, and 4G units; moving to 5G is a logical step that Qorvo is already taking. The company has solutions for the lower bands of 5G, up to 39GHz, and is working on higher frequency applications.

JPMorgan’s Bill Peterson writes of QRVO’s recent performance: “Qorvo is benefitting from content gains in 5G phones across a broad set of smartphone vendors and the team again maintained its above market expectation of 5G shipments this year, which at least directionally is playing out as smartphone mix continues to skew toward 5G amid continued weakness in legacy 4G shipments. Outside of mobile, demand is improving across 5G infrastructure, which we believe led to much of the upside in the June quarter…”

Peterson gives the stock a $140 price target to back his Buy rating; this suggests a 9% upside from current levels. (To watch Peterson’s track record, click here)

Overall, Qorvo holds a Strong Buy rating from the analyst consensus, with 13 Buy reviews and just 3 Holds. The stock’s average price target is $136.81, suggesting room for 6% growth from the current trading price of $128.64. (See Qorvo stock analysis on TipRanks)

MACOM Technology Solutions (MTSI)

The last company on our list is JPM’s down check. MACOM, based in Lowell, Massachusetts, produces semiconductor devices and components in the radio, microwave, and millimeter wave bands, and is a major supplier for Northrop Grumman, the Federal Aviation Authority, and the National Oceanic and Atmospheric Administration.

MACOM’s product line includes a wide array of 5G enhancements, from driver and low noise amplifiers to detectors, mixers, and multipliers. The chipsets function across a large range of the 5G waveband, giving them flexibility for use in systems that are still evolving from 4G to 5G.

The solid product line underlay MACOM’s strong performance in Q2. EPS, at 20 cents, was far above Q1’s mere penny, and revenues were also strong. The company is forecast to match this performance in Q3.

5-star analyst Harlan Sur, in his coverage of the stock for JPM, notes all of this – and comes to an unexpected conclusion. MTSI shares are, he says, likely to underperform in coming months.

“MACOM’s Jun-Q results are in line with our 2Q20 Earnings Preview, where we remained positive on semiconductor companies exposed to cloud datacenter spending and 5G infrastructure… MACOM continues to exercise OpEx discipline as OpEx declined in the Jun-Q… operating margin exceeded 20% for the first time since 2017… However, it does appear that some of the growth-focused programs (GaN on Silicon 5G power amplifiers, high-speed lasers for optical connectivity, PAM4 DSPs, SENSR radar program, and silicon photonics) are still more longterm-focused growth drivers. Despite the solid results, solid execution, and earnings power expansion, the stock appears expensive relative to peers,” Sur explained.

Sur rates this stock an Underweight (i.e. Sell), and his $35 price target suggests it has a downside going for ward of 10%. (To watch Sur’s track record, click here)

Overall, MACOM gets a Moderate Buy from the consensus rating, with 8 recent reviews breaking down to 4 Buys, 3 Holds – and that 1 Sell. Shares are selling for $39.05, and the average price target of $43.38 implies that there is room for an 11% upside. (See MACOM stock analysis on TipRanks)

To find good ideas for 5G stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.