5G could be the key growth driver for “tech” stocks in 2020.
That’s the upshot of a new report out of investment bank Needham this week, as its analysts report back from the just-ended Consumer Electronics Show in Las Vegas. Accelerating sales of both handsets and the infrastructure needed to make them work will provide a “major growth catalyst” for semiconductor-makers in particular, and tech in general, opines Needham, accelerating off a slowdown in the second half of 2019.
“5G handset roll-outs [will accelerate] throughout 2020, especially in the 2H,” culminating in total phone sales of perhaps 200 million by the time the year is out. So… how do you plan to play this trend?
Leveraging TipRanks’ Stock Screener tool to comb through Needham’s picks, we’ve come up with three stocks that win high marks not just from the analyst making this 2020 forecast — but from Wall Street analysts in general. Here’s what you need to know about them.
Tower Semiconductor (TSEM)
First up is Tower Semiconductor, which as the name implies is a maker of analog intensive mixed-signal semiconductor devices.
Investors in Tower Semiconductor stock can expect to see “low double-digit” organic growth in 2020, says Needham analyst Rajvindra Gill. And while that may not sound like much, it’s significantly faster — potentially as much as twice as fast — as the 6.7% growth rate that most Wall Street analysts are expecting (which could mean additional upgrades will follow as Tower delivers on its promises).
Tower aims to aggressively expand capacity at its factories churning out 200mm and 300mm chips to supply growing demand for 5G smartphones, which are experiencing “stronger than expected 5G proliferation.” In particular, Tower sees an opportunity to supply makers of OLED fingerprint sensors for these phones. Oh, and gross margins on these products may already have “bottomed out” at 19%.
Indeed, Gill takes the lead on recommending this one, assigning Tower stock a “buy” rating and $30 price target.
With sales growing faster than expected, and profit margins firming perhaps sooner than expected, the outlook for Tower is looking pretty good, and $30 a share is certainly not out of the question — nearly a 17% profit from today’s share price.
TSEM has built its Strong Buy consensus rating on solid performance which has attracted three “buy” and one “hold” ratings in the last three months. This stock is selling for $25.55, so the $26.83 average price target implies an upside of 5%.
Marvell Technology (MRVL)
Long known as a designer of analog and mixed-signal embedded and standalone integrated circuits, Needham analyst Quinn Bolton views Marvell Technology as a prime beneficiary of the growing 5G base station market, which Bolton sees as capable of producing up to $6 billion in annual sales globally.
Huawei will be Marvell’s primary competitor in this market, dominating sales in both China and Europe, which could pose a problem. However, the analyst still sees $4 billion in annual sales elsewhere as up for grabs. To win this work, Marvell must win business from the base station makers that aren’t named Huawei, which include Ericsson, Nokia, and Samsung.
The good news here (for Marvell) is that Bolton believes “Huawei’s ability to ship critical 5G infrastructure products … targeting international markets may be further limited,” decreasing the competitive threat outside of China and Europe.
Result: Bolton believes Marvell stock is a “buy.” In so doing, he’s joining a chorus of nine other analysts who have assigned Marvell stock buy-equivalent ratings over the past month.
Resonant Inc. (RESN)
Last and certainly least-well-known, we come to Resonant. A bona fide microcap at just $80 million in market cap, Resonant hails from Goleta, California, where it’s trying to build a business making designing filters for radio frequency electronics used in smartphones.
The company’s not profitable yet, nor free cash flow positive, yet Needham likes this one fully as much as its larger, better-known peers in the semiconductor space.
Indeed, assigning Resonant a $4.50 target price (the stock costs less than $2.50 a share today), Needham’s Rajvindra Gill makes the case that this stock could be a near two-bagger as it expands to serve 5G needs in an RF filter market that could grow to $28 billion in annual sales by 2025 (from just $12 billion in 2019).
Ramping demand for “streaming video and increased bandwidth requirements” will be the catalyst here, as 5G speeds demand more advanced tech to service them.
At the same time, though, Gill urges investors not to forget about 4G just yet, which will “continue to play major role in the market.” This is because in the early stages of the 5G revolution, true 5G speeds won’t be available everywhere, all the time, and investors should anticipate that “the 4G network to provide a backstop for 5G coverage holes.” Because 4G is currently Resonant’s strength, there’s an opportunity for this tiny company to become a major player in the “old” technology as its competitors focus their attention elsewhere.
Survey says… Wall Street agrees. A grand total of four out of four ratings published in the past two months say Resonant is a “buy.” And even if not everyone’s as optimistic as Needham, the consensus price target on this stock is still $4.25 a share — and 71% upside for buyers today.
