An ETF Play on 5G
During the past month, the NASDAQ Composite (IXIC) hit a record high. Since bottoming out below 6,700 on March 23, IXIC soared above 10,800 on July 13. That’s a 63% rise in less than four months. Further below, I’ll show you how you can still get in on the action without overpaying for a lot of stocks you don’t need.
The adjective “tech-heavy” frequently accompanies any mention of the NASDAQ Composite. That’s because most of Silicon Valley’s most important companies are listed on the NASDAQ stock exchange. In fact, the five most valuable stocks in the S&P 500 Index — Microsoft (NSDQ: MSFT), Apple (NSDQ: AAPL), Amazon.com (NSDQ: AMZN), Alphabet (NSDQ: GOOGL), and Facebook (NSDQ: FB) — all trade on NASDAQ.
Just how big are they? Combined, these five stocks comprise just 1% of the number of companies in the index. Yet, they account for 25% of its value since the index is weighted according to market capitalization.
All of those fun facts aside, the critical takeaway is understanding why tech stocks have been performing so well lately. The coronavirus pandemic has forced almost everyone to adapt to a new way of life:
- Telecommuting and videoconferencing from home.
- Shopping online and home delivery.
- Remote learning for students.
Even after COVID-19 has been eradicated, many of these adaptations will persist. In most cases, they are less expensive and more efficient than the alternative. For that reason, future earnings estimates for most tech companies have been upgraded, driving their share prices higher.
The one thing all of those wonderful technologies need to function is a very high-speed Internet that can handle a lot of data. Fortunately, the build-out of a nationwide 5G (fifth generation) wireless network in the United States is nearing completion. Soon, just about everyone in America will have direct access to this network.
Sometimes, Wall Street can’t see beyond the end of its nose. At the same time it is bidding up the share prices of companies that will soon be entirely reliant on 5G technologies for their revenues, it is largely ignoring the companies that will make it possible.
Want proof? Consider the Defiance 5G Next Gen Connectivity ETF (FIVG). During the past 12 months, FIVG has gained 13%, less than half the 28% rise in the NASDAQ Composite.
That does not make sense to me. If all the other NASDAQ companies are expected to become more profitable thanks to 5G technologies, shouldn’t the 5G providers become just as profitable if not more so?
The good news is you can still get in on the 5G revolution at a reasonable price. At the start of this week, a share of FIVG was trading for less than $28. For that price, you own a piece of 79 companies directly involved in the development of 5G technologies all over the world.
This fund is relatively small, with $350 million in assets. However, the stocks it owns in its portfolio are huge including Qualcomm (NSDQ: QCOM), NXP Semiconductors (NSDQ: NXPI), and Analog Devices (NSDQ: ADI).
The timing for this fund could not be better. Thanks to the coronavirus pandemic, demand for certain 5G technologies such as videoconferencing is skyrocketing.
Of course, not every company that will benefit from 5G technologies is in this fund. For example, last October I added Logitech International (NSDQ: LOGI) to the Personal Finance Growth Portfolio. Logitech is best known for making computer peripheral equipment such as keyboards and mice.
Since then, LOGI has gained 67% in just nine months. That’s pretty good for a “boring” hardware manufacturer. Over the same time period, stock market darling Microsoft returned 52%.
Think about that for a moment. If a stock like Logitech can outperform Microsoft, imagine what a company with a more dynamic product line (and scalable revenue stream) might be able to do.
You don’t have to imagine any longer. My colleague, Dr. Stephen Leeb, happens to be an expert on the subject.
Through painstaking research, Dr. Leeb has uncovered a devastating technology flaw that the telecom industry needs to overcome for 5G to remain viable. If left unaddressed, this fatal flaw could bring America’s wireless network to its knees.
The good news is, Dr. Leeb has found a small technology company with the innovation that can solve this problem. The company is flying under the radar and when Wall Street learns of its secret, the stock will shoot through the roof. Want to know more? Click here for details.