Technological breakthrough creates big investment opportunities.
As internet speeds took off, so did Netflix [NASDAQ:NFLX]. If you’d bought 1,000 shares at the August 2012 low point of US$7.70 and held them, you’d have over $359,000 today.
As investors, we study the trends. The more research we do and the more experience we have, the stronger our convictions become. And then we look to find an instrument to invest in and profit from these convictions. Ideally in a spectacular way.
5G is the next generation of mobile broadband and will revolutionise internet speeds. It’s not about fibre-connecting at home or work, but out there on the streets, where it counts.
So how can you profit from 5G?
You could invest in a 5G equipment company.
There’s a campaign afoot to block Huawei by ‘The Five Eyes’ countries (including our own) due to possible risk of Chinese spying. Although it’s a leader in 5G technology, it’s not investable since the company is wholly owned by its employees.
A friend of mine visited several tech firms in China last year. In the West, the CEO or GM does the initial intros. In China, it’s a member of the Communist Party.
The Chinese Communist Party has some 90 million members — at Huawei, these are key executives who are also employee-owners. So you can understand concerns in the West over Huawei.
And with them shut out, that makes the pickings richer for others.
Ericsson [STO:ERIC-B] and Nokia [HEL:NOKIA] are among Goldman Sachs’ top stock picks for the rollout of 5G wireless services.
But I don’t think the biggest or at least the long-tail gains are going to come from the one-off install. They’ll come from what 5G can enable, and for those, you need to look beyond the mainstream.
But not so fast. What about some of the beleaguered telecoms out there?
Telco resurgence
Telstra [ASX:TLS] used to be the dividend darling of large Australasian funds. It still forks out a reasonable 5% annually. But the current share price of around $3.18 is well down from the highs of $6.60 it reached in 2015.
Like a lot of telcos around the world, Telstra has been squeezed by tight margins, regulation, and customer churn. Shareholders have been battered long and hard.
The current price reflects wariness.
Yet Telstra is seeing an uptick in mobile subscribers, and 5G could give it the shot in the arm needed to get the share price going again.
The analysts I follow see a potential price for Telsta of around $4.40.
Of course, you must be careful with analyst reports. As Warren Buffett once said, ‘Don’t ask the barber whether you need a haircut.’
Still, if Telstra continues to shed excess weight, competes hard and grows profits with 5G, gains for the smart investor could be satisfying.
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5G enables new industries
5G will make mobile broadband faster and more stable. It will reduce latency, meaning devices can communicate quicker with each other.
Want to make some big investment gains on 5G? Choose the businesses with the most to gain.
Self-driving cars won’t work until we have 5G.
The current 4G network isn’t fast enough to give cars the ‘human’ reflexes needed to prevent accidents. 5G changes the game. Once safety is assured, manufacturers can get on with making the cars that will transform transportation. I’m talking mass-produced cars without steering wheels and pedals.
I believe there’s one automaker that’s best capitalised and positioned to benefit from self-drive. I’m working on an analysis report to explain why. The key is not only the ability to produce great autonomous vehicles but to scale them in the coming safety-assured 5G environment.
Speed to market will be vital.
Now, we’re a long way from adoption. In the US — with one of the world’s largest roading networks — only about a quarter of Americans say they’d feel safe without a driver. If 5G changes the safety equation and testing proves that, adoption could avalanche.
Sure, there are times I want to drive — like out in the countryside with my Alfa Romeo in dynamic mode. But not in Auckland traffic. Here, I wish my car could operate like a mobile office, or it could be sent out on its own to pick up my son from school.
For the latter, I’d have to know that the self-drive car is as safe (or safer) as driving with Dad.
5G also opens capabilities in IoT (Internet of Things) and Augmented Reality.
The ultimate autonomous IoT vehicle would not just drive itself but also know when it needs a clean or service — taking care of all of that with nothing more than a simple text to my smartphone to confirm the payment.
There’s a small Kiwi company rising with the move to IoT.
A major concern for the world economy right now is stalling growth. Technological revolution can change all that.
General Electric has stated on record that, by 2030, IoT could add $10 to $15 trillion to worldwide GDP. That’s a potential increase to world GDP of 13% to 19%.
As with any growth revolution, smart investors will profit massively.
Will you be one of them?
Regards,
Simon Angelo
Analyst, Money Morning New Zealand
Important disclosures
Simon Angelo owns shares in Telstra Corporation [ASX:TLS] (via wealth manager Vistafolio).