Credit Suisse picks 6 stocks to ride shift to 5G smartphones — and one has 40% upside

Published Thu, Sep 9 202110:30 PM EDT

Swiss investment bank Credit Suisse identified stocks in Asia it said would benefit as the smartphone industry recovers and the number of 5G mobile devices grows — including some shares with over 40% upside. 5G refers to the fifth generation of high-speed mobile internet that aims to provide faster data speeds and more bandwidth to carry growing levels of web traffic. New technologies like self-driving cars are underpinned by the rapid development and global deployment of 5G networks, but they are are still at a nascent stage. In a note dated Aug. 31, Credit Suisse pointed out growth of the smartphone market slowed in the second quarter due to fewer sales in China as well as the impact of the Covid-19 pandemic. The bank trimmed its estimates for the current quarter from 353 million smartphone units to 338 million but expects full-year growth of 7.6%. Credit Suisse maintained its forecast for 5G smartphone devices to grow from 255 million units in 2020 to 551 million this year. By 2023, that number is expected to climb to 900 million as the technology becomes widely available and affordable. Semiconductor companies "are the best way to play the 5G theme," Manish Nigam, head of Asia-Pacific technology research at Credit Suisse, told CNBC on Tuesday at a briefing. He explained that is likely because a bulk of the extra spending around 5G is going to semiconductor firms and the current chip shortage allows them to charge higher prices. In its Aug. 31 note, the investment bank highlighted 15 Asian stocks that could benefit from a transition to 5G in the smartphone market, with projected average earnings growth of 74% this year. The bank's top picks are: Taiwan Semiconductor Manufacturing Company : The smartphone business contributes around 40% to 50% of chip sales for the world's largest semiconductor foundry and is expected to see continued growth, according to Credit Suisse. The bank lifted TSMC's price target from 675 New Taiwan dollars ($24.46) to 700 New Taiwan dollars, pointing to 13% upside from Wednesday's close. ASE : The Taiwanese semiconductor manufacturing services provider is poised for strong growth in the second half of 2021. Credit Suisse sees 18.8% upside with a price target of 142 New Taiwan dollars. Mediatek : The Taiwanese chip designer is penetrating higher value smartphone segments and narrowing the phone competitiveness gap to Qualcomm from between 90% and 100% to 70%, according to Credit Suisse. The bank's price target of 1,250 New Taiwan dollars indicates upside of 37%. VPEC : The Taiwan-based semiconductor technology provider has a "more balanced customer base" compared with some of its peers. Credit Suisse says it is set to benefit from 5G proliferation in the near term and could gain from electric vehicles and autonomous driving in the longer term. The firm sees 31.76% upside for the stock. Sunny Optical : The Chinese tech firm, which sells camera modules to device makers, is expected to gain from the recoveries in the smartphone and automotive sectors as well as from new customers. The bank projects upside of 14.5%. Luxshare : This Apple supplier in China is "a blue-chip for the A-share tech sector due to strong execution, best visibility on growth, and plenty of new opportunities," Credit Suisse said. The bank added Luxshare will be the main beneficiary of Apple's "ongoing wireless strategy and localising supply chain in China." The firm has a price target of 50.60 yuan ($7.84), implying upside of 40.16%. Nigam told CNBC on Tuesday that Credit Suisse remains "very bullish" on 5G from a smartphone angle — the expansion of 5G services in mobile devices is the initial application of the technology, but its full potential will only be realized in the longer term. "5G, by itself, is more like a 10-year story," he said, adding, "As we go three years, five years and 10 years into this technology, we will see devices and applications that most of us ... have never heard of, or can't even imagine."

5G display during the 2019 Consumer Electronics Show (CES) Asia in Shanghai, China.

Gao Yuwen | VCG | Getty Images