What happens if tech stocks slip into the penny profile? Huge potential – and solid ratings from some of Street’s top-rated analysts. And why not? For investors, the digital technology field is a target-rich environment. Established companies and their newer competitors are making headlines, and a wave of IPOs has brought new billion-dollar unicorns to our attention. And with the rollout of digital 5G networks, there are more opportunities than ever in technology.
And penny stocks — stocks priced below $5 a share, the modern analogue of the stocks that once sold for a penny — are a niche ripe for profit. Their low price means that even a small incremental profit will translate into large percentages.
Of course, both technology and pennies offer both risks and rewards. New technology companies fail as often as they thrive, and some penny stocks are priced so low for a reason. But for investors willing to bear the risks, there are potential rewards.
With this in mind, we have the TipRanks Database to look for two stocks, closely related to 5G, and both trade in the penny range. Better yet, both have received very positive reviews from 5-star analysts at the investment firm Needham. Let’s see what the analysts had to say.
We’ll start with Resonant, a company that deals with the nuts and bolts of wireless networking technology. Resonant is particularly known for its radio frequency filters, an essential part of the circuitry that shields ‘noise’ in wireless radio transmission. This is vital in all Wi-Fi applications, but especially in 5G, as the new technology brought higher frequencies, greater data transfer density and faster timing. Blocking out static electricity and interference is essential for 5G to work.
This is where Resonant steps in. The company’s WaveX software platform provides customers with tools to fine-tune their RFFE (radio frequency front-ends). Resonant’s tools make it possible to solve problems with carrier aggregation and band proliferation. This upgrade to Resonant’s product line improves its applicability to 5G and other high-end wireless technology.
Resonant reported solid numbers in the first quarter (last reported quarter), with a 25% sequential gain in shipped RF filter products and a soaring 437% year-over-year gain. In raw numbers, it was 8.6 million filters that were shipped. The Q2 numbers look even more impressive. Although the quarterly reports have not yet been released, preliminary information shows that the company shipped 17.5 million filters in the quarter, almost double the Q1 number, which was already a record. These numbers reflect customers benefiting from WaveX design technology – representing 450% yoy growth.
Needham’s 5-Star Analyst Rajvindra Gill is impressed by Resonant’s forward-thinking potential, writing, “We are still in the earliest innings of the 5G deployment cycle, with most cycles peaking 13-14 years after initial launch (2019 for 5G). The maximum potential of 5G, which is both speed gain and latency gain, will not be possible without new filtering technology on both transmitters (base stations, routers) and receivers (consumer devices).Resonant has developed a new generation of filters using old production methods, which are cheaper. and have a broader manufacturing base, which could gain significantly more traction as new filters become a requirement to maximize the potential of 5G globally.”
The analyst added: “The stock underperformed the SOX… and is now trading at ~10x EV/Sales by our 2022 estimate, slightly above the 8x 3-year median. We believe this underperformance offers an opportunity to to buy stocks at an attractive price, with more than 100% upside… one of the largest in our coverage universe.”
Unsurprisingly, Gill RESN is rating a buy, and his price target of $6.25 implies upside potential of around 115% for one year. (To view Gill’s track record, click here)
RESN hasn’t attracted much attention from analysts, but those who have reviewed the stock agree with Gill’s assessment. The stock has a unanimous consensus rating from Strong Buy analysts, based on 3 positive ratings. The average stock price target for RESN is $6.08 and implies an increase of approximately 109% from the current trading price of $2.91. (See RESN stock analysis on TipRanks)
Ceragon networks (CRNT)
And now we go to Ceragon. This company makes wireless hardware, the physical devices that establish Wi-Fi connections – especially in the backhaul segment of the networks, which connect urban cores to peripheral areas. Ceragon’s hardware can be found in 5G networks in both cities and suburbs, giving the company a solid foundation to build on as the new networks expand.
And Ceragon is making itself part of that expansion. In early July, the company announced its most recent agreement with a US service provider for multi-year managed services. The client company will use Ceragon’s services to improve performance on its fiber network.
That was just the latest expansion of Ceragon’s US operations. Also in July, the company announced new business from India. Several of the South Asian giant’s Tier-1 operators have contracted with Ceragon for follow-up orders for previous services. These orders will expand their network footprint in India and put Ceragon’s platforms at the heart of the 5G rollout in India. The Indian orders are worth at least $35 million.
All this and more caught the eye of Needham’s 5-star analyststerren Alex Henderson.
“Ceragon has been selected by three US SPs to deploy its microwave products for 5G to improve performance and network density… Recent wins not only highlighted the superior microwave platform, but also highlighted its software and services capabilities. Underscoring this point, Ceragon followed this win by announcing that a major US provider has signed a contract for a multi-year managed services deal. 5G front-haul and new products give us confidence in the longer-term prospects. Ceragon recorded Indian orders of more than $35 million, confirming our view that India is recovering, even though COVID remains an issue in that economy,” Henderson wrote.
To this end, Henderson gives CRNT shares a Buy rating, based on “imminent demand for 5G.” Its price target of $4.75 suggests a ~31% gain this year. (To view Henderson’s track record, click here)
Sometimes low-priced stocks slip under the radar – and Ceragon has only picked up 2 recent analyst reviews. However, they both agree that this is a stock to buy, which gives CRNT its consensus rating for a moderate buy. The stock is trading at $3.65 and has an average price target of $5.65, giving them ~55% upside potential for the next 12 months. (See CRNT stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are those of the recommended analysts only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.