Pitchmen (and pitchwomen) are in high gear selling the next revolution: 5G cellular wireless.
The train is leaving the station, and investors must jump on board now — so goes the typical pitch.
Is your skeptical antennae going up? They should be.
Selling “revolutions” works when stocks are in an uptrend. As you know, benchmark indexes — the Dow Jones Industrial Average DJIA, +0.92%, S&P 500 Index SPX, +0.84% and Nasdaq Composite COMP, +1.06% — are at record highs.
Investment advisers are getting more clients, brokers are getting more business, investment newsletters are getting more subscribers, and media are getting more advertising. After all, the next revolution of 5G is upon us. No investor wants to be left behind.
Before I name 10 5G stocks that are in The Arora Report’s portfolio, let us build the necessary background to understand this next wave of tech investing with the help of a chart.
Note the following:
• The chart shows the times when Nokia was highly touted as a 5G stock.
• During that period, I regularly received inquiries from investors as to why The Arora Report was not recommending Nokia. Some investors were thinking we were not up to snuff as we were missing out on the great opportunity to buy Nokia.
• The chart shows that investors, who gave into the pitchmen, lost half of their investment.
• The chart shows the recent Arora purchase at $3.33 when Nokia fell into the Arora buy zone after a 50% plunge.
• Nokia was one of the stocks in our January Effect list. The January Effect is a proven strategy to potentially make up to 30% in three to four months. Please see “How to take advantage of the January Effect in the U.S. stock market.”
• The tentative plan is to hold on to Nokia longer than other January Effect stocks due to 5G.
• Nokia’s stock illustrates the perils of giving in to the pitchmen and buying into the frenzy.
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The real catalyst
For the time being, the pitchmen of 5G stocks are the heroes of investors. But investors fail to realize that it is their own purchase of 5G stocks that is causing the increase. Are the pitchmen geniuses at stock analysis or at creating the frenzy? Pitchmen are certainly geniuses at creating the frenzy.
Ironically, this time is really different — typically, pitchmen are at work at lesser-known stocks because they are easier to pump. If you have been around for a while, you know firsthand that sometimes “dump” follows “pump.” Now the biggest pump is in the biggest stock — Apple AAPL, +1.25% stock.
A big part of the rise in Apple is due to the 5G pitch. Apple is likely to release a 5G phone later this year. The phone is expected to be priced around $1,200. 5G will not only bring a new mega upgrade cycle for Apple iPhones, it has the potential to dramatically increase service revenues for Apple. For the record, The Arora Report has owned Apple in its portfolio since it fetched $18.73.
On Oct. 23, before the company’s earnings release, The Arora Report raised Apple’s target zone to $325-$365. To the best of my knowledge, this was the highest target at that time. Please see “Apple stock’s next milestone is $320 as a crucial transition is on track.” We recently raised Apple’s very long-term target zone to $375-$425, the highest target at this time. This illustrates, in part, the power of 5G.
How and when to buy
Should you rush headlong into buying 5G stocks, such as Apple, now? The answer is a no-brainer. This stock market is controlled by the momo (momentum) crowd. If you are a proud member of the momo crowd, it makes sense to buy 5G stocks with the highest momentum. Momentum can move stocks higher than you would expect.
However, if you are a prudent investor, the answer is totally different: Don’t buy these stocks now.
Here are the reasons to ignore the pitchmen:
• 5G is a multi-year opportunity. There will be plenty of opportunities with less risk.
• Sentiment is beginning to approach an extreme in some of the stocks. At an extreme, sentiment is a contrary indicator. In plain English, when sentiment reaches an extreme, it is a sell signal.
• Several of the 5G stocks are technically very overbought. When stocks are very overbought, they tend to be vulnerable to the downside.
• The 5G rollout may not happen as fast as investors expect.
• Upcoming earnings in many of these stocks have a high probability of coming in lower than the whisper numbers.
• In addition to long-term investing opportunities, there will be plenty of short-term trading opportunities.
Prudent investors ought to wait for the following before buying these stocks:
• Pullbacks into Arora buy zones.
• New technological developments as they relate to specific companies.
• New triggers based on earnings.
• New triggers based on new products.
• Sentiment turning very negative.
• When momo crowd money flows are negative but smart money flows are positive. Please see “Something rare is happening among popular technology stocks.”
The 10 stocks
There are several stocks and ETFs in The Arora Report portfolios that will benefit from 5G. Here are the top 10 5G stocks diversified by different strategies.
• Applied Materials AMAT, +2.07%
• AT&T T, +0.42%
• Ciena CIEN, +1.13%
• Nokia NOK, +3.45%
• NXP Semiconductors NXPI, +1.27%
• Qorvo QRVO, +1.16%
• Qualcomm QCOM, +2.36%
• T-Mobile TMUS, +1.46%
• Xilinx XLNX, +2.56%
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.