3 5G shares to buy in December


Among other less tasty things, 2020 will end as 5G mobility becomes accessible to the general public. America’s next-generation telecommunications networks have made their debut nationwide, sparking a new round of upgrading smartphones to take advantage of better mobile service. But 5G is only just beginning. It will take years for 5G coverage to match 4G, and network infrastructure improvements are a never-ending game. To this end, we believe Ansys (NASDAQ: ANSS), Micron technology (NASDAQ: MU), and On innovation (NYSE: ONTO) deserve your attention in the final weeks of 2020.

A modern engineering bet on 5G and high-end computing

Nicholas Rossolillo (Ansys): I’m betting with a new title this month for my 5G bet – 3D engineering design software provider Ansys. The company develops software design tools for engineers, helping them in the design and simulation of systems and materials. In a world where technology is becoming more and more complex, Ansys finds a high demand for its services.

Image source: Getty Images.

Why is this a 5G action? Among the many use cases for its engineering software are the design of the 5G hardware and network, from the design of the chips themselves that create and receive a mobile radio signal, to antenna systems and to the infrastructure needed to build a 5G network. Coupled with its other capabilities for a range of industries, I love this ever growing engineering game in a new digital age.

Granted, that’s not the fastest growing name in the 5G world. Due to the pandemic disruption, revenue grew only 3% in the first nine months of the year. Adjusted net profit is down 12% from the first nine months of 2019. However, things are looking up for Ansys. At the midpoint of forecast, revenue and adjusted earnings per share are expected to increase 15% and 12%, respectively, year over year in the last quarter of 2020.

Certainly, part of this growth is attributable to acquisitions. Ansys took over its design counterpart Lumerical in March and more recently announced it was purchasing aerospace simulation, defense and telecommunications software company Analytical Graphics for $ 700 million. He expects the latter agreement to be reached before the end of the year. But there is another reason I love Ansys. The company is a regular acquirer of smaller software technology peers, and is able to fund its expenses with its incredibly high profit margins. Even in a less than perfect year, Ansys has generated an operating profit margin of 27% over the past 12 months.

Cash and cash equivalents of $ 845 million and debt of only $ 424 million at the end of September add to my intrigue. The future looks bright for Ansys as it helps its customers design for 5G and other cutting-edge technologies. I’m going to think about a small initial purchase (less than 1% of my portfolio value) as the year draws to a close.

Memory-hungry 5G phones are great for chipmakers

Anders Bylund (Micron technology): Advanced 5G networking technology requires more memory in the next generation of smartphones. Micron Technology, the only supplier of pure-play memory chips to the US stock markets today, is poised to profit hugely from this technical quirk.

You don’t have to take my word for it. Micron raised its guidance for first quarter earnings and revenue earlier this week. On a related conference call, CEO Sanjay Mehrotra said this quarter’s surprising strength is based on strong memory sales in the data center market, but the picture changes when he looks forward to the next two. years.

“It’s not just a data center. Look at mobile, 5G, ”he said. “Next year, calendar year 2021, around half a billion smartphones are expected to be sold with 5G. 5G also generates more DRAM and more NAND content. So our end markets are well diversified and we are seeing longer term growth. trends in all our end markets. ”

The surge in forecasts has driven Micron’s stock prices to new multi-year highs. When I say multi-year, I mean going back to the dot-com boom to find a higher price on Micron’s stock. Even so, the stock looks downright cheap with only 11 times the expected earnings. Unit prices in the volatile DRAM market are on the rise amid strong demand from end markets for smartphones, data centers, connected cars and artificial intelligence. Many analysts expect the uptrend to continue at least until calendar year 2021.

Micron’s stock chart tends to follow memory chip price trends, and the current surge should have legs for some time. Memory-hungry 5G phones are an important ingredient in Micron’s recipe for long-term growth today.

A small cap in semiconductor equipment manufacturing with exciting growth prospects

Billy Duberstein (On innovation): An unknown name in the semiconductor equipment industry is On innovation (NYSE: ONTO). Are you unfamiliar with the business? Maybe it’s because Onto was created just in 2019, when Nanometrics Incorporated merged with Rudolph Technologies. The merger created a company with equipment covering advanced metrology equipment as well as specialized devices and advanced packaging.

As next-generation 5G processors and high-performance computing technologies take hold over the next decade, semiconductor manufacturers will put increased pressure to produce smaller, more powerful chips. However, the smaller and more compacted the chips, the more difficult they are to produce and the more stringent a manufacturer’s process controls must be. This is where Onto’s advanced metrology solutions come in, which provide TSMC (NYSE: TSM), Intel (NASDAQ: INTC), and all major memory manufacturers. Since the start of the year, Onto’s metrology equipment has represented 37% of sales.

Advanced packaging accounted for 39% of sales and is also designed for strong growth. According to VLSI’s advanced packaging forecast, advanced packaging sensors and wafers are expected to grow at an average annual growth rate of 19% through 2023. The remaining 24% of Onto’s revenue comes from recurring software and services, which are expected to grow with Onto’s installed base. .

Onto also has a sterling balance sheet, with around $ 340 million in cash and no debt, and it is trading at very reasonable profit estimates 18 times 2021, a little below its biggest rival. KLA Corporation (NASDAQ: KLAC), which trades about 21 times next year’s earnings estimates.

While the stock has seen a good performance over the past month, its reasonable valuation, strong cash flow generation, and exposure to strong growth trends in 5G and high performance computing make Onto a name that worth buying in December.


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