With 5G offering a potential revolution for mobile networking in the coming years, here are three UK investments I would back right now to get in early.
Vodafone (LON:VOD) Somewhat of a hedged, if obvious 5G investment, the UK mobile giant Vodafone (LSE: VOD) was one of the first to test the new technology back in 2017, potentially placing it in a good position when things do move forward. Its share price has been under pressure for the past year or so, with the company confirming a 40% cut in its annual dividend on 14 May. Though this hit the stock further, the move was not altogether unexpected, and so to some extent has been priced in. More importantly, the cut can be seen as a sensible move, shoring up Vodafone’s balance sheet after its large-scale purchase in the 5G spectrum – again putting it in a good position when the technology is rolled out (which Vodafone plans to do by the end of 2019).
With falling revenues and earnings, its share price may not have quite reached its low point yet, but Vodafone could be in a good position to take advantage of 5G when it is finally implemented.
IQE A hardware play for 5G, IQE (LSE: IQE) manufactures epitaxial wafers for use in semiconductors, particularly those used in wireless communications. In March this year, the company announced its participation in a research project that could place it at the forefront of the specific technology involved in so-called ‘fibre-in-air’ technology; a broader use of the D-Band spectrum so key for 5G. Falling earnings and analyst downgrades have been pressuring its shares over the past year or so, perhaps offering potential bargain hunters a way in. Just this month, analysts at Panmure Gordon began covering the stock with a buy rating, suggesting 5G is set to be a driver behind longer-term growth.
While earnings have been easing lower the past few years, both revenue and assets have been growing for the company, placing it in prime springboard-position when 5G is rolled out.
Keywords Studios For those interested in software, Keywords Studios (LSE: KWS) could be a balanced way to invest in 5G today. The company offers a range of services such as localisation and quality control testing to video game developers, effectively helping them develop more technologically advanced games. With the improved network speeds that 5G will bring, mobile gaming and network play is set to become even more popular than it currently is, with Keywords perfectly placed to benefit.
The company has seen consistent growth on both the top and bottom line for years, most recently reporting pre-tax profit growing 65% despite what it calls the ‘Fortnite Effect’ – the popular game crowding out a number of games developers (Keywords works for both these developers, and those of Fortnite). What’s more, the company has made a number of acquisitions over the past year that have had the fairly rare effect of being instantly value-adding, each time bringing about a boost in its share price and finances.
The stock has been climbing since the beginning of 2019, but with 5G on its way, this could still be a good investment to take advantage of 5G.
Karl owns shares in Keywords Studios. The Motley Fool UK has recommended Keywords Studios. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019