Searching for Value in the 5G Market

How many times do you wish that you had jumped on new technology while it was still in the crib? Laptops, internet, smartphones… going all the way back to the automobile, steam engine, the wheel, fire… It’s been a time-honored way to go boom if you catch the right wave.

By most accounts, the oncoming 5G ripple is set to become a tidal wave. says, “5G technology is projected to have a massive impact on next-gen infrastructures. It is likely to play an important role in powering future cities, industries, transport, homes, etc. The high-performance network capacity of 5G technology is prompting service providers and telecom operators to invest in the technology.” adds, “Global 5G Technology market accounted for $33.67 billion in 2017 and is expected to reach $3482.89 billion by 2026 growing at a CAGR of 67.44% during the forecast period.” 1

With that sort of upswing just around the corner, 5G companies should offer investors opportunities to get in during the new technology’s infancy, relatively speaking. ETF S SOLUTIONS/DEFIANCE NEXT GEN C NYSEARCA: FIVG is a diversified way to invest in the 5G wireless frontier.

The exchange traded fund (ETF) tracks the BlueStar 5G Communications Index. The index is rules-based and tracks the performance of a group of roughly 60 listed stocks that are involved in the rollout of 5G networks.

If ETFs aren’t your thing, we’ve cracked open FIVG’s holdings to identify the most attractive companies in our view. Like the BlueStar Index, we’ve laid down some rules in making our selections:

  • Trading at par or to a discount to growth on a price-to-earnings (P/E) basis
  • Valued at or below the Index’s average price-to-sales (P/S) ratio
  • A return-on-equity (ROE) greater or equal to 10
  • The Current Price is at least 15% below its 52-week intraday high

Of the 60 plus candidates, these are the pairs that meet all our criteria:

Hewlett Packard Enterprise Co NYSE: HPE

Hewlett Packard operates as a technology company. The company operates through four segments: Hybrid IT, Intelligent Edge, Financial Services, and Corporate Investments. The Intelligent Edge segment provides solutions for mobility and Internet of Things, as well as enterprise networking and security solutions for businesses campus and branch environments under the Aruba brand. This segment also offers wired and wireless local area network products such as Wi-Fi access points, switches, and routers; and software products, including network management, network access control, analytics and assurance, and location services software.

  • HPE trades with a current forward P/E of 8.23 while earnings for the year are projected to grow at 9%.
  • Its P/S ratio of 0.64 is well below the BlueStar Index average of 3.64%.
  • ROE stands at 12.32%
  • And HPE shares are 17.5% below its 52-week intraday high

Lumentum Holdings Inc NASDAQ: LITE

Lumentum manufactures and sells optical and photonic products in the Americas, the Asia-Pacific, Europe, the Middle East, and Africa. The company operates through two segments, Optical Communications and Commercial Lasers. The Optical Communications segment offers components, modules, and subsystems that enable the transmission and transport of video, audio, and text data over high-capacity fiber optic cables.

  • LITE trades with a current forward P/E of 13.05 while earnings for the year are projected to grow at 23.8% and 14.70% in 2020.
  • Its P/S ratio of 3.06 is 15.93% below the BlueStar Index average of 3.64%.
  • ROE stands at very healthy 19.94%
  • And LITE shares are 16.3% below its 52-week intraday high

Of the two companies, Lumentum Holdings would be our choice. In our opinion, projected higher earnings growth, stronger ROE, and its relatively underpriced P/S ratio versus the industry average offers more potential than Hewlett Packard Enterprise.