Eliran Assa

Huawei’s blacklisting is rattling semiconductor stocks. Ignore it, and keep focused on long-term 5G growth

It’s a tale of two mornings …

Yesterday, the trade war and escalations with Huawei had semiconductor investors fleeing the sector.

We learned that some suppliers to Huawei had stopped shipments to the Chinese company. This came after the White House blacklisted Huawei, effectively halting its ability to buy U.S.-made parts and components. This news meant that major Huawei suppliers, including Qualcomm, Broadcom, Intel and Xilinx would not sell to the Chinese firm until further notice.

Semiconductors companies, including the ones just mentioned, are heavily used in Huawei’s products. Yesterday’s news hit them hard, as investors feared the effect of losing the Huawei business. After all, as the world’s largest provider of telecom equipment, Huawei purchases $20 billion of semiconductors every year.

The Philadelphia Semiconductor index fell as much as 3.5%. As of yesterday, the Index had fallen 13% this month, which is a significant reversal from its 12% rally in April.

But today has brought a reversal …

Washington has decided to temporarily ease curbs on Huawei. The Commerce Department announced it would be issuing a temporary license for select U.S. companies to continue working with Huawei, effective immediately and lasting 90 days.

As I write the Philadelphia Semiconductor Index is up over 2% on the positive news.

Of course, tomorrow, the news could be bad again. And since semiconductors play a critical role in the rollout of next-generation 5G technology — and since U.S. semiconductor stocks are found in the portfolios of millions of Americans, how should investors respond to this?

On one hand, we don’t want our long-term investment goals to be derailed by shorter-term pressures. But we also don’t want to be foolish about the potential for bigger losses directly in front of us.

With this in mind, in today’s Digest let’s turn to legendary investor, Louis Navellier. Louis is an icon among growth investors, with one of the most respected track records in the industry. He’s also very bullish on the future of 5G, So, let’s see how he’s viewing recent events — and as importantly, determine what that means for your 5G stocks.

***The company at the center of the trade war

Last Friday, Louis started his update to subscribers by establishing context for what’s happened between the U.S. and China.

China’s 5G company, Huawei Technologies, has been a major point of contention (in the U.S./China trade war). The Trump administration claims that Huawei’s technology enables the Chinese government to spy on the U.S.

Well, on Wednesday, President Trump inked an executive order to ban American telecommunications networks from utilizing equipment from foreign suppliers, like Huawei Technologies. The Chinese company was also added to the Commerce Department’s “Entity List,” which blocks Huawei from purchasing equipment from U.S. companies without government approval.

Now, if you’re not 100% sure why 5G and Huawei are such a point of contention in the overall trade war, it’s because tomorrow’s technological supremacy rests on who wins this 5G race.

***And the stakes for who wins the 5G battle are enormous

You see, 5G has the power to transform entire sectors, and by extension, entire economies.

Consider this — over the last several years, the U.S. won the battle of 4G. And the prize? In 2016 alone, the win increased U.S. GDP by $100 billion, created additional jobs, reduced consumer costs, and helped lead to the development of more advanced applications.

Yet that’s nothing compared to the prize for 5G supremacy…

From The Hill:

5G promises to have an even larger economic impact, as the technology is projected to enable more than $12 trillion in global economic output by 2035. Here at home, when the entire 5G value chain is considered, some expect the benefits to top $3.5 trillion, support 22 million jobs, and contribute the equivalent of the entire economy of India to real American global GDP.

With speeds up to 100 times faster than 4G, lag-time lowered by a factor of five, mobile data volumes 1,000 times greater than today, and lower drain on batteries for remote cellular devices, 5G will enable new capabilities and unlock innovation across the economy.

Obviously, the financial stakes are massive.

***It’s not just about money — there’s also the fear that if China wins the 5G race, Beijing would use Huawei as a means of spying on the west

You see, under China’s national intelligence law, any Chinese company could be compelled by Chinese intelligence agencies to install back doors in various devices. Think of this as eavesdropping or spyware software. The fear is this would enable the Chinese government to look over the shoulder of the U.S. government.

That brings us back to Huawei, which is the largest telecom company in the world, with annual sales of more than $100 billion. As mentioned earlier, Huawei spends billions on semiconductors every year. So, the Trump administration’s blockage of Huawei business has the potential to majorly impact U.S. semiconductors earnings.

For evidence, all we have to do is note the selling pressure on semiconductors stocks yesterday — Qualcomm was down nearly 5%. And Xilinx and Broadcom traded lower by nearly 4%.

Of course, as I write today, the stocks are rallying. Xilinx if up over 4%. Broadcom and Qualcomm are both up over 1%.

***So, how should 5G/semiconductor investors respond?

Louis begins by referencing two stocks he believes will be winners in the 5G race, one of which is Xilinx. He then explains how he’s viewing the selling pressure:

I’m viewing any dips in these stocks — and all of our fundamentally superior Buy List companies — as a good buying opportunity.

The bottom line: Please do not knee-jerk react to the headlines or follow the crowds to the exits. The U.S. and China trade negotiations are ongoing, and both countries want to claim that they have won the trade war when it’s all said and done. I still believe that both sides will come to an agreement that’s mutually beneficial, and when that happens, Wall Street will cheer and drive stocks higher.

In the meantime, continue to use market dips as good opportunities to scoop up shares of our Top 5 Stocks and A-rated Buy list positions.

So, let’s view this pressure in the right context. Selloffs may be painful to watch in the short-term, but with the right long-term perspective, we can see them as simply “sales prices” on the 5G leaders of tomorrow. Case in point, if you’d purchased Xilinx in late afternoon trading yesterday, you’d be up roughly 4% right now.

If you haven’t put any money to work in 5G yet, this is an investment trend that absolutely deserves your attention. For the final word on “why?”, I’ll go back to Louis:

The 5G global infrastructure market is expected to grow from $2.55 billion in 2020 to over $42 billion by 2025. That’s a 75% increase — far larger than many other industries could ever imagine in just five years.

The bottom line: 5G is a very, very big deal. Essentially, whoever controls 5G is anticipated to control the internet several years from now. So, the long-term investment potential is huge.

If you’d like more on how Louis is viewing 5G and the investment opportunities, he’s put together a free presentation highlighting the huge technological shift that’s going on right now. In it, he even shares his #1 investment for the 5G revolution — no strings attached. Click here to watch now.

Have a good evening,

Jeff Remsburg

Eliran Assa