InterDigital Inc: Under-the-Radar 5G Stock Could Reward Investors

idcc stockLooking for the Best 5G Stocks? Read This

The neat thing about 5G stocks is that many of them are familiar names to retail investors.

You probably use a smartphone and pay monthly bills to one of the major wireless carriers in the U.S. As we enter the 5G era, companies behind these products and services—such as Apple Inc. (NASDAQ:AAPL), Verizon Communications Inc. (NYSE:VZ), AT&T Inc. (NYSE:T), and T-Mobile US Inc (NASDAQ:TMUS)—have a good chance of growing their business.

Think about it: Apple’s new 5G “iPhone” models are more expensive than their 4G counterparts, and because consumers are likely going to use more data in the ultrafast 5G environment, wireless carriers could earn bigger profits.

However, these everyday names are not the only candidates if you’re looking for the best 5G stocks. InterDigital Inc (NASDAQ:IDCC), for instance, is not a familiar company to most people, yet it’s well positioned to benefit from the increasing adoption of 5G technology.

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InterDigital is a research and patent licensing company headquartered in Wilmington, DE. Because the company does not sell a product or service to consumers directly, most people have never heard of it. And with a market capitalization of around $1.8 billion, it’s not big enough to make headlines often in financial media.

The company has strong research capabilities. Among the roughly 290 engineers working at InterDigital, 107 are PhDs. According to the company’s latest investor presentation, its business model is to “Bring core technology to the market though substantial technical contributions to the global standards.” (Source: “InterDigital Q3 2020 Investor Presentation,” InterDigital Inc, last accessed November 4, 2020.)

And right now, the company already has one of the largest patent portfolios in the world related to wireless and video technologies.

To give you an idea, InterDigital holds approximately 10% of standard essential patents (SEPs) in 3G and seven percent to 10% of SEPs in 4G.

Meanwhile, of all the patents and applications disclosed to the European Telecommunications Standards Institute (ETSI) that are categorized as 5G, InterDigital is behind about six percent of them. (Source: Ibid.)

And even though end users might not have heard of InterDigital, its technologies are being used in millions of devices. Among the company’s customers are Apple, Samsung Electronics Co Ltd, Sony Corp, and LG Electronics Inc. Notably, Apple and Samsung were InterDigital licensees even before they started selling iPhones and “Galaxy” phones.

InterDigital Inc’s licensing business is largely recurring. Every handset company that has ever signed a license and remains in the industry is still a customer of the company. In the fast-changing tech world, having a recurring business model is reassuring to investors.

The best part is, despite the impact from the COVID-19 pandemic, this 5G company has grown its business. In the second quarter of 2020, InterDigital generated $85.2 million in recurring revenue, representing a 15% increase year-over-year. The company also improved its net income, operating cash flow, and free cash flow during the quarter. (Source: “InterDigital Announces Financial Results For Second Quarter 2020,” InterDigital Inc, August 6, 2020.)

InterDigital Inc (NASDAQ:IDCC) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

As I said earlier, compared to some of the other 5G stocks, IDCC is a relatively under-the-radar ticker. From the above stock chart, we see that InterDigital Inc’s shares have been trading at about the same level as they did a year ago.

Given the company’s unique business model and its potential as 5G adoption increases, there could be substantial upside in InterDigital stock.