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November 18, 2020

Top Canadian 5G Stocks to Be Looking at Right Now

Disclaimer: The writer of this article may have positions in the securities mentioned in this article. The fact they hold positions in securities has had no impact on the production of this article

By Nelson Smith

November 18, 2020

5G is coming to Canada, and you won’t want to be left out. It could easily be the next big investing theme.

Here’s the skinny.

We’ve essentially maxed out what 4G wireless networks are capable of. 4G technology can play video, load Facebook, and do a lot of other things, but it’s not very useful for the next generation of technology. We need faster speeds for true innovation tomorrow.

A world powered by 5G has the potential to be revolutionary place.

Self-driving cars and drones can zip about, using wireless signals to both get where they’re going and avoid each other. Remote health care will be much easier with ultra-clear video between you and your doctor.

The Internet of Things will allow numerous smart devices to communicate with each other, making overall commerce much easier. Heck, even smart cities will emerge, technological marvels that will change our lives in countless ways.

No wonder so many Canadian investors are excited about 5G stocks. This could prove to be one of the best growth opportunities in the entire market over the next decade or two, and they may be some of the best Canadian stocks to buy.

There’s just one problem.

Most of the ways to play 5G are from the United States. But with the U.S. Dollar continuing to gain against its Canadian counterpart, many Canadian investors are reluctant to exchange their Loonies for Greenbacks. Other investors just want to support local companies and keep their cash inside the country.

Let’s take a closer look at three top Canadian stocks that will have significant exposure to 5G over the next few years.

3.BlackBerry (TSX:BB)

Top Canadian 5G Stocks - BlackBerry TSX:BB There are a few ways BlackBerry (TSX:BB) could benefit from an upcoming 5G revolution.

Although the company isn’t a big player in the handset business today, its brand is still worth something. It works with a partner that manufactures phones while the parent company still handles the design, marketing, and negotiations with wireless carriers. A good 5G phone would help the company regain some of its former handset glory.

Other parts of BlackBerry are poised to benefit even more from 5G, however. One example is the company’s self-driving car software division, which has ramped up to testing on Ontario streets.

While CEO John Chen claims the technology is at least a decade away from being adopted on a large scale, widescale 5G networks could help speed the process.

BlackBerry has other divisions that will benefit from full-scale 5G rollouts. The company is well-known as a security expert, and these networks will need to be protected from bad guys. It also looks to benefit from helping companies secure their own 5G-connected devices.

The company has also expanded into making software for smart devices. One big part of that business is the auto industry, with BlackBerry’s QNX software powering many in-vehicle entertainment systems. There’s potential to grow this part of the business significantly if ultra-fast 5G networks make it easy for machines to talk to each other.

2. Sierra Wireless (TSX:SW)

Best 5G stocks - Sierra Wireless Sierra Wireless (TSX:SSW) makes devices that allow internet connected machines to communicate with each other, an application that is particularly useful in the utility, transportation, manufacturing, and retail industries. As 5G connectivity continues to grow, so will demand for these devices.

The company is already a major player in the sector with sales of more than US$700 million in 2019.

Look for that number to slowly increase over 2020-21 before really jumping in 2022 and beyond, right when 5G is really projected to take off.

Remember, the market is forward looking. That means by the time everyone else figures out just how big 5G might be, you’ll have missed your opportunity.

Sierra is extremely bullish on the Internet of Things market once 5G becomes commonplace. In 2018, the total addressable market was approximately 235 million modules.

That’s projected to grow to 1.5 billion modules by 2023. Increased speeds from 5G networks will make all sorts of interesting things happen.

Unfortunately, the company is projected to burn significant cash in 2020, with losses estimated at more than US$1 per share. 2021 is expected to be a lot closer to break-even.

The good news is the company has plenty of cash with US$75 million – or about $2 per share – on the balance sheet with zero debt. The company is also in the middle of a cost cutting plan that should save it US$50 million per year by the end of 2020.

With shares trading at less than $15 each on the Toronto Stock Exchange – which is well below 2017 highs of $37 – today is a great opportunity to pick up this Canadian 5G stock on the cheap.

1. Telus (TSX:T)

Telus

 

Both BlackBerry and Sierra Wireless should benefit as 5G becomes the norm. But it’s obvious Canada’s wireless providers will be the real winners in such a world. This is why I’m naming Telus (TSX:T) as our top Canadian 5G stock pick.

Telus (along with its competition) is already aggressively investing in 5G equipment to upgrade its existing network.

Although Rogers Communications (TSX:RCI.B) did beat Telus by activating parts of its 5G network earlier this year, it was just a pyrrhic victory since there aren’t any phones that are currently 5G compatible.

These upgrades will cost billions, but they’ll be worth it in the end. After all, the Canadian telecom providers always find a way to keep their rates high. Do you really think you’ll have a cheaper cell phone bill once the networks are upgraded?

There will be multiple competitors in the Internet of Things sector. Many companies will be building software that connects smart devices with each other.

There will be multiple competitors on the hardware side, too. Canada’s telecom sector, meanwhile, won’t get caught up in any of that. They’ll make us pay whatever price they determine because these companies own the market.

What a fantastic spot to be in.

I prefer Telus over its competitors for a couple of reasons. Firstly, it’s more of a pure telecom play. Rogers and BCE (TSX:BCE) own media properties and sports teams.

Secondly, Telus posts better operating margins than its competition because of this focus on better businesses.

And lastly, Telus offers a unique combination of being one of Canada’s best dividend stocks today in terms of yield (5.04%) and dividend growth.

The bottom line on Canadian 5G stocks

5G is poised to become a very big deal, and Canadian investors don’t have to be left out. They can seize their share of the profits by investing in a few local 5G stocks. When it comes down to it, there is a very good chance the Canadian government forces telecom companies to cut cell phone bills. So, advancements in 5G technology will more than likely be the path to growth.

Telus looks poised to deliver solid returns without a whole lot of downside risk. That’s why it topped this list. Investors looking to take a little more risk in exchange for a better potential reward might want to look at BlackBerry or Sierra Wireless. If either of these companies take off, their depressed shares could easily rocket higher.

Canada doesn’t have much of a tech sector, but it does have a handful of 5G stocks that can really make a difference in your portfolio. Stick with these names if you’re looking for a way to play the sector.

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Nelson Smith


Nelson is a dividend value investor who insists on buying great dividend-paying companies when they are reasonably priced. He has been investing for more than 15 years and is now primarily focused on helping other investors build up a dependable stream of passive income. When he's not studying the markets, Nelson can be found relaxing with his wife and cat or watching the Toronto Blue Jays.

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