5 Low-Leverage Stocks to Buy Amid the Focus on Inflation Data

For Immediate Release

Chicago, IL – November 13, 2024 – Today, Zacks Equity Research Qualcomm Inc. QCOM, Ericsson ERIC and InterDigital Inc. IDCC.

Industry: Wireless

Link: https://www.zacks.com/commentary/2368636/3-wireless-stocks-likely-to-transcend-industry-shortcomings

The Zacks Wireless Equipment industry is plagued by large-scale investments for seamless 5G migration, eroding profits due to escalated price wars, high customer inventory levels and inflated raw material costs. Moreover, a challenging macroeconomic environment, prolonged geopolitical conflicts and uncertain business conditions continue to weigh on margins. However, the transition to cloud and fiber network infrastructure upgrades should help the industry in the long run.

Despite short-term headwinds, Qualcomm Inc., Ericsson and InterDigital Inc. are likely to profit from a vast proliferation of IoT, increased fiber densification and a gradual shift to cloud services and 5G technology.

Industry Description

The Zacks Wireless Equipment industry primarily comprises companies providing various networking solutions, wireless telecom products and related services for wireless voice and data communications through scalable modular platforms. Their product portfolio encompasses integrated circuit devices (chips) and system software for wireless voice and data communications, analog and digital two-way radio, satellite telecommunications, wireless networking and signal processing and end-to-end enterprise mobility solutions.

The firms also provide a broad range of routing, switching and security products, video surveillance and machine-to-machine communication components that secure VPN appliances, enable intrusion detection and thwart data theft. Some firms even provide electronic warfare, avionics, robotics, advanced communications and maritime systems to the defense industry.

What's Shaping the Future of the Wireless Equipment Industry?

Demand Erosion: Efforts to offset substantial capital expenditure for upgrading network infrastructure by raising fees have persistently reduced demand, as customers tend to switch to lower-priced alternatives. Moreover, the high technological obsolescence of most products has escalated operating costs, with steady investments in R&D becoming necessary to fend off competition. Due to a challenging macroeconomic environment and intense market volatility, high customer inventory levels pose another headwind for the companies.

Fiber, Cloud Networking Traction Act as Tailwinds: To maintain superior performance standards, there is a continuous need for network tuning and optimization, which creates demand for state-of-the-art wireless products and services. Moreover, a faster pace of 5G deployment is expected to augment the telecommunications industry's scalability, security and universal mobility and propel the wide proliferation of IoT.

Expansion of fiber optic networks to support 4G LTE and 5G wireless standards, as well as wireline connections, are likely to act as tailwinds. The industry participants are facilitating its customers to move away from an economy-of-scale network operating model to demand-driven operations and seamlessly migrate to 5G by offering easy programmability and flexible automation through steady infrastructure investments. The exponential growth of cloud networking solutions is further resulting in increased storage and computing on a virtual plane. As both consumers and enterprises use the network, there is tremendous demand for quality networking equipment.

Short-Term Profitability Compromised: Although high infrastructure investments will eventually help minimize service delivery costs to support broadband competition and wireless densification, short-term profitability has largely been compromised. Margins are likely to be affected by the high cost of first-generation 5G products, U.S.-China trade tensions with the re-election of President Trump, the prolonged Russia-Ukraine war and the Middle-East tensions.

Uncertainty regarding chip shortage (albeit to a lesser extent) and supply-chain disruptions leading to a dearth of essential fiber materials, shipping delays and scarcity of other raw materials due to geopolitical unrest are expected to affect the expansion and rollout of new broadband networks. Extended lead times for basic components are also likely to hurt the delivery schedule and escalate production costs.

Zacks Industry Rank Indicates Bearish Trends

The Zacks Wireless Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #161, which places it in the bottom 35% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Before we present a few wireless equipment stocks that are well-positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms S&P 500, Sector

The Zacks Wireless Equipment industry has outperformed the S&P 500 composite and the broader Zacks Computer and Technology sector over the past year.

The industry has surged 52.3% over this period compared with the S&P 500 and sector’s growth of 36% and 40.3%, respectively.

Industry's Current Valuation

On the basis of trailing 12-month Enterprise Value-to EBITDA (EV/EBITDA), which is the most appropriate multiple for valuing telecom stocks, the industry is currently trading at 29.02X compared with the S&P 500’s 18.56X. It is also trading above the sector’s trailing 12-month EV/EBITDA of 18.4X.

Over the past five years, the industry has traded as high as 38.43X, as low as 12.06X and at the median of 23.78X.

3 Wireless Equipment Stocks to Watch

Qualcomm: Headquartered in San Diego, CA, Qualcomm designs, manufactures and markets digital wireless telecom products and services based on the Code Division Multiple Access technology. The company is well-positioned to meet its long-term revenue targets driven by solid 5G traction, greater visibility and a diversified revenue stream. It is increasingly focusing on the seamless transition from a wireless communications firm for the mobile industry to a connected processor company for the intelligent edge.

The buyout of Veoneer, Inc. has offered Qualcomm a firmer footing in the emerging market of driver-assistance technology. The Zacks Consensus Estimate for the current fiscal and next fiscal earnings has been revised 9.2% and 5.4% upward, respectively, since November 2023. It has a long-term earnings growth expectation of 9.5% and delivered an earnings surprise of 7.6%, on average, in the trailing four quarters. It has a VGM Score of B.

The stock has gained 35.9% in the past year. Qualcomm carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ericsson: Headquartered in Stockholm, Sweden, Ericsson is a leading provider of communication networks, telecom services and support solutions. It is the world’s largest supplier of LTE technology with a significant market share and has established a large number of LTE networks worldwide.

The company focuses on 5G system development and has undertaken many notable endeavors to position itself as a market leader. It believes that the standardization of 5G is the cornerstone for digitizing industries and broadband. This Zacks Rank #2 stock has gained 78.4% over the past year. The Zacks Consensus Estimate for the current fiscal earnings has been revised 4.5% upward since November 2023. It has a VGM Score of A.

InterDigital: Headquartered in Wilmington, DE, InterDigital is a pioneer in advanced mobile technologies that enable wireless communications and capabilities. The company engages in designing and developing a wide range of advanced technology solutions for digital cellular as well as wireless products and networks. IDCC’s global footprint, diversified product portfolio and ability to penetrate different markets are impressive.

Apart from the company’s strong portfolio of wireless technology solutions, the addition of technologies related to sensors, user interface and video to its offerings is likely to drive significant value, considering the massive size of the market it licenses. Furthermore, the company remains committed to pursuing acquisitions to drive its product portfolio and boost organic growth.

This Zacks Rank #1 stock has gained 107.4% over the past year. It has a VGM Score of A. The stock has a long-term earnings growth expectation of 17.4% and delivered an earnings surprise of 163.7%, on average. The Zacks Consensus Estimate for the current fiscal earnings has been revised 135.4% upward since November 2023.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Zacks Investment Research

Tuesday, November 12, 2024

The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features new research reports on 16 major stocks, including Netflix, Inc. (NFLX), Salesforce, Inc. (CRM) and Cisco Systems, Inc. (CSCO), as well as a micro-cap stock, BK Technologies Corp. (BKTI). These research reports have been hand-picked from roughly 70 reports published by our analyst team today.

You can see all of today’s research reports here >>>

Netflix’s shares have outperformed the Zacks Broadcast Radio and Television industry over the past two years (+169.1% vs. +77.1%). The Zacks analyst believes that the planned launch of an in-house ad tech platform next year signals the company's commitment to maximize its revenue stream, with ad revenues expected to roughly double year-over-year in 2025. A robust, localized and foreign-language content lineup and healthy customer engagement levels have helped.

However, stiff competition in the streaming space from the likes of Apple, Amazon Prime Video and Disney+ remains a headwind.

(You can read the full research report on Netflix here >>>)

Salesforce’s shares have outperformed the Zacks Computer – Software industry over the past year (+58.7% vs. +21.3%). The Zacks analyst believes that the company’s sustained focus on aligning products with customer needs is driving growth. Continued deal wins in the international market are another growth driver. Salesforce’s strategy of continuous expansion of generative AI offerings are also helping it to tap the growing opportunities in the space.

Yet, stiff competition and unfavorable currency fluctuations are concerns. Softening IT spending amid ongoing macroeconomic uncertainties might hurt its growth prospects.

(You can read the full research report on Salesforce here >>>)

Shares of Cisco have outperformed the Zacks Computer - Networking industry over the last six months (+20.4% vs. +19.2%). Per the Zacks analyst, the launch of AI-powered Hypershield, which combines security and networking, has strengthened the company’s security portfolio. Also, its business model has evolved with subscription revenues accounting for more than half of total revenues.

Yet, Cisco has been suffering from sluggish networking sales as well as stiff competition. Its prospects are further challenged in the AI-driven networking space due to stiffening competition aggravated by Hewlett Packard’s deal to acquire Juniper.

(You can read the full research report on Cisco here >>>)

BK Technologies’ shares have outperformed the Zack Wireless Equipment industry over the past year (+119.5% vs. +52.3%). The Zacks analyst believes that the growing demand for BKR 9000 and BKR 5000 radios have supported revenue growth. Also, a large order backlog and focus on innovation, such as the patented InteropONE solution, strengthens BK's market position.

However, reliance on government contracts, supply-chain risks and limited product diversification pose potential challenges.

(You can read the full research report on BK Technologies here >>>)

Other noteworthy reports we are featuring today include Tesla, Inc. (TSLA), Novartis AG (NVS) and TotalEnergies SE (TTE).

Mark Vickery

Senior Editor

Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>

Today's Must Read

Salesforce (CRM) Rides on Portfolio Strength and Buyouts

Netflix (NFLX) Rides on Subscriber Growth, Original Content

Cisco (CSCO) Benefits From Strong Security Products Adoption

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Expanding LNG & Clean Energy Assets Aid TotalEnergies (TTE)

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Telefonica (TEF) Rides on Robust 5G Coverage Amid Forex Woes

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Strong Organic Growth and Partnerships Aid Affirm Holdings (AFRM)

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Strategic Initiatives Aid Owens Corning (OC), High Costs Ail

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New Upgrades

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New Downgrades

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Rising Expenses & Weak Asset Quality to Hurt WaFd (WAFD)

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Zacks Investment Research

NetApp, Inc. NTAP recently announced an enhanced partnership with Red Hat, a premium provider of open-source solutions, to transform enterprise application development and management within virtual environments. By combining NTAP’s expertise in intelligent data infrastructure with the Red Hat OpenShift platform, the initiative empowers businesses to effortlessly manage on-premises and hybrid multi-cloud environments.

Businesses today face mounting pressure to innovate quickly and develop applications that streamline operations and create better outcomes for their customers. Red Hat OpenShift, built on Kubernetes, is widely adopted by major global organizations to streamline application lifecycles, enhance productivity and facilitate innovation in areas like artificial intelligence (AI).

With this expanded collaboration, NTAP is improving its data infrastructure, making Red Hat OpenShift environments more cost-effective and flexible. This aids customers in better managing, securing and protecting Kubernetes container workloads and virtual applications.

Key Components of the Enhanced NetApp-Red Hat Integration

A key aspect of this collaboration is the integration of NetApp Trident, a Container Storage Interface driver, with Red Hat OpenShift. This integration allows Red Hat OpenShift and Red Hat OpenShift Virtualization users to leverage NetApp ONTAP’s advanced storage capabilities, such as replication and disaster recovery.

With Trident, Red Hat OpenShift operations teams and DevOps teams gain simplified access to high-performance, all-flash storage that maintains persistence, ensuring continuity even as virtual machines or containers are created, modified, or removed. The new version of Trident, available at no additional cost, brings integrated protection, migration and disaster recovery capabilities. Also, it now supports Google Cloud NetApp Volumes, providing more options for cloud storage.

Another significant enhancement is the release of validated designs for Red Hat OpenShift Virtualization and Red Hat OpenShift AI deployments on Cisco FlexPod, NetApp’s converged infrastructure solution. With these validated designs, enterprises have greater assurance that their virtualized and AI-driven workloads will run smoothly within a unified environment.

As part of this collaboration, the companies are delivering a new integration between Red Hat OpenShift Dedicated and Google Cloud NetApp Volumes. This integration provides Red Hat OpenShift Dedicated customers with a first-party storage option on Google Cloud. With Google Cloud NetApp Volumes, organizations can now use enterprise storage built on NetApp ONTAP directly in Google Cloud, offering a managed environment optimized for high availability and performance.

Strategic Alliances Driving NTAP’s Revenue Prospects

NTAP’s continuous efforts to strengthen its collaborations with leading names not only drive greater innovation within businesses but also unlock new revenue streams for the company. In October 2024, NTAP expanded its partnership with Google Cloud by integrating unified data storage and intelligent services into the Google Distributed Cloud architecture. Google Distributed Cloud harnesses the power of NetApp's intelligent data infrastructure, backed by ONTAP and StorageGRID solutions, to boost its services, including databases, AI and analytics.

In September 2024, the company announced an advancement in generative AI, combining its data management expertise with NVIDIA’s AI software and accelerated computing. The partnership aims to augment enterprise retrieval augmented generation, unlocking the power of next-gen agentic AI. Apart from these, NTAP has strengthened its collaboration with Amazon Web Services to improve customer experiences through accelerated generative AI initiatives, simplified processes and valuable CloudOps solutions.

NetApp is also gaining from continued strength in demand for flash portfolio. Driven by momentum across flash, block, AI and cloud storage solutions, management has raised its guidance for fiscal 2025. It now expects revenues in the range of $6.48–$6.68 billion compared with the previous band of $6.45–$6.65 billion.

San Jose, CA-based-NTAP assists enterprises in managing multiple cloud environments, adopting next-generation technologies like AI, Kubernetes and contemporary databases, and navigating the complexity brought about by the quick development of data and cloud usage.

NTAP’s Zacks Rank & Stock Price Performance

NTAP currently carries a Zacks Rank #2 (Buy). Shares of the company have gained 58.9% in the past year compared with the sub-industry's growth of 33.6%.

Other Stocks to Consider

Some other top-ranked stocks from the broader technology space are Workday Inc. WDAY, Arista Networks, Inc. ANET and InterDigital, Inc. IDCC. IDCC & ANET presently sport a Zacks Rank #1 (Strong Buy), whereas WDAY carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

ANET provides cloud networking solutions for data centers and cloud computing environments. The company offers 10/25/40/50/100 gigabit Ethernet switches and routers optimized for next-generation data center networks. In the last reported quarter, it delivered an earnings surprise of 7.36%.

IDCC is a pioneer in advanced mobile technologies that enable wireless communications and capabilities. The company engages in designing and developing a wide range of advanced technology solutions, which are used in digital cellular as well as wireless 3G, 4G and IEEE 802-related products and networks. It has a long-term growth expectation of 17.44%

WDAY is a leading provider of enterprise-level software solutions for financial management and human resource domains. The company’s cloud-based platform combines finance and HR in a single system, making it easier for organizations to provide analytical insights and decision support. In the last reported quarter, it delivered an earnings surprise of 7.36%.

Zacks Investment Research

The Zacks Wireless Equipment industry is plagued by large-scale investments for seamless 5G migration, eroding profits due to escalated price wars, high customer inventory levels and inflated raw material costs. Moreover, a challenging macroeconomic environment, prolonged geopolitical conflicts and uncertain business conditions continue to weigh on margins. However, the transition to cloud and fiber network infrastructure upgrades should help the industry in the long run.

Despite short-term headwinds, Qualcomm Incorporated QCOM, Ericsson ERIC and InterDigital Inc. IDCC are likely to profit from a vast proliferation of IoT, increased fiber densification and a gradual shift to cloud services and 5G technology.

Industry Description

The Zacks Wireless Equipment industry primarily comprises companies providing various networking solutions, wireless telecom products and related services for wireless voice and data communications through scalable modular platforms. Their product portfolio encompasses integrated circuit devices (chips) and system software for wireless voice and data communications, analog and digital two-way radio, satellite telecommunications, wireless networking and signal processing and end-to-end enterprise mobility solutions. The firms also provide a broad range of routing, switching and security products, video surveillance and machine-to-machine communication components that secure VPN appliances, enable intrusion detection and thwart data theft. Some firms even provide electronic warfare, avionics, robotics, advanced communications and maritime systems to the defense industry.

What's Shaping the Future of the Wireless Equipment Industry?

Demand Erosion: Efforts to offset substantial capital expenditure for upgrading network infrastructure by raising fees have persistently reduced demand, as customers tend to switch to lower-priced alternatives. Moreover, the high technological obsolescence of most products has escalated operating costs, with steady investments in R&D becoming necessary to fend off competition. Due to a challenging macroeconomic environment and intense market volatility, high customer inventory levels pose another headwind for the companies.

Fiber, Cloud Networking Traction Act as Tailwinds: To maintain superior performance standards, there is a continuous need for network tuning and optimization, which creates demand for state-of-the-art wireless products and services. Moreover, a faster pace of 5G deployment is expected to augment the telecommunications industry's scalability, security and universal mobility and propel the wide proliferation of IoT. Expansion of fiber optic networks to support 4G LTE and 5G wireless standards, as well as wireline connections, are likely to act as tailwinds. The industry participants are facilitating its customers to move away from an economy-of-scale network operating model to demand-driven operations and seamlessly migrate to 5G by offering easy programmability and flexible automation through steady infrastructure investments. The exponential growth of cloud networking solutions is further resulting in increased storage and computing on a virtual plane. As both consumers and enterprises use the network, there is tremendous demand for quality networking equipment.

Short-Term Profitability Compromised: Although high infrastructure investments will eventually help minimize service delivery costs to support broadband competition and wireless densification, short-term profitability has largely been compromised. Margins are likely to be affected by the high cost of first-generation 5G products, U.S.-China trade tensions with the re-election of President Trump, the prolonged Russia-Ukraine war and the Middle-East tensions. Uncertainty regarding chip shortage (albeit to a lesser extent) and supply-chain disruptions leading to a dearth of essential fiber materials, shipping delays and scarcity of other raw materials due to geopolitical unrest are expected to affect the expansion and rollout of new broadband networks. Extended lead times for basic components are also likely to hurt the delivery schedule and escalate production costs.

Zacks Industry Rank Indicates Bearish Trends

The Zacks Wireless Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #161, which places it in the bottom 35% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Before we present a few wireless equipment stocks that are well-positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms S&P 500, Sector

The Zacks Wireless Equipment industry has outperformed the S&P 500 composite and the broader Zacks Computer and Technology sector over the past year.

The industry has surged 52.3% over this period compared with the S&P 500 and sector’s growth of 36% and 40.3%, respectively.

One-Year Price Performance