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BUY Alert! Learn From Warren Buffett and Buy 2 Canadian 5G Stocks in 2021

Puja Tayal
·4 min read
Man considering whether to sell or buy

For those who follow Warren Buffett’s investing style, it’s time to pull up your socks and get some 5G investment rolling in. The pandemic delayed the 5G rollout but aggravated the need for 5G. In the fourth quarter, Buffett invested US$8.6 billion in Verizon and also increased his stake in telecom giant T-Mobile. You might wonder why this sudden interest of Buffett in telecom? There is only a one-word answer to it: 5G.

Warren Buffett bets on 5G

The 5G rollout has gathered momentum. What is 5G, and what is its scope? It is the next-generation wireless technology, but far bigger than 4G. The 4G rollout began in 2010 and provided faster data speed and lower latency. It was the 4G technology that provided the infrastructure for cloud, e-commerce, and digital payment companies to flourish. Had it not been for the internet penetration, cloud-based companies like Shopify wouldn’t have achieved the scale they need to grow.

In the 2020 decade, Verizon and TMUS stocks surged 96% and 470%, respectively. Leaving aside the dividends, a $10,000 investment in these stocks in 2010 would have earned you $28,400 in capital appreciation. Now, the next phase of communication infrastructure will go beyond faster data speed and low latency. The 5G infrastructure will connect millions of devices simultaneously and make mission-critical applications a reality. The 5G infrastructure will make edge computing, autonomous cars, virtual reality, and robotics a reality.

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Buffett has invested in the above two telecom companies, 5G device manufacturer Apple, and cloud-based data warehousing company Snowflake. Buffett has a lot more indirect exposure to 5G as well. Even you can get exposure to the entire supply chain of the 5G revolution.

How to invest in the 5G revolution

The best way to make money in a tech revolution is by buying stocks of market leaders across the supply chain. When you invest in market leaders, there is a lower risk of decline. When you invest across the supply chain, you diversify your portfolio, mitigating the impact of any decline. One other aspect to consider when building a portfolio is the tax implication. Any investment income is taxable, but you can save on taxes by investing through the Tax-Free Savings Account (TFSA).

As 5G is communication technology, you should have exposure to both telecom stocks and tech stocks. BCE (TSX:BCE)(NYSE:BCE) is Canada’s largest telecom operator and has one of the fastest 5G national mobile networks. The company plans to invest more than $1 billion over the next two years in expanding its network and 5G footprint.

The 4G technology helped BCE operate at an adjusted EBITDA margin of 42% in 2020 and give $3.5 in annual dividend. In the last 10 years, the operator increased its dividend per share at an average annual rate of 6.4%. If you had invested $5,000 in BCE 10 years ago, you would now have around $16,900 ($9,300 in dividend income + $2,570 in capital appreciation) in your TFSA. As the 5G opportunity is much bigger than 4G, BCE could replicate or accelerate its growth in the 2030 decade.

The technology ETF

Telecom is a dividend stock that will mitigate your downside risk. Tech stock is where there is real growth. But the problem with tech stocks is they are volatile. Not all tech stocks succeed in gaining market share. Hence, a risk-averse way to gain exposure to tech is through the iShares S&P/TSX Capped Information Technology Index ETF (TSX:XIT). The ETF has exposure to 18 top Canadian tech stocks from e-commerce to enterprise software to IT services.

Last year, the e-commerce stocks drove the ETF up almost 50%. In the next few years, automotive software or cybersecurity software will lead the growth. Any gains in one segment will offset declines in the other. The ETF has surged at an average annual rate of 18% in the last 10 years.

It may maintain this momentum or slow down. But in both cases, the ETF will outperform the market and give you better returns in the long term.

The post BUY Alert! Learn From Warren Buffett and Buy 2 Canadian 5G Stocks in 2021 appeared first on The Motley Fool Canada.

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Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Shopify, Shopify, and Snowflake Inc. The Motley Fool recommends T-Mobile US and Verizon Communications.

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