The mobilemarket is huge. And in the past few years, it has been
growing exponentially across the globe. Mobile technology is
constantly reshaping how we interact in our daily lives. From
smartphones to tablet computers, can you think of anyone who
doesn't own one of these mobile devices?
There's no question we are a connected world: There are now an
estimated 6 billion mobile subscribers worldwide,
according to DigitalBuzz
Consumers aren't just texting anymore, they're using mobile
devices for bank transactions, shopping and a growing list of other
uses. The demand for these services is exploding each year and
along with it is the need for more cellphone towers.
This is where a hugeinvestment opportunity lies.
Tower companies makemoney owning wireless broadcast towers and
leasing them to telecommunication operators on long-term contracts
that escalate in price by about 3-5% annually. In other words,
owning a telecom tower is equivalent of owningreal estate .
One of my favorite types ofinvestments is real estate,
especially real estate investment trusts (REITs). REITsoffer
investors an opportunity to gain access to a real estate portfolio
without the headache of being alandlord . They typically include
high-quality commercial properties, ranging from apartment
buildings and office complexes, to health care facilities and
shopping malls. Because REITs have no investment minimums, they
allow large and small investors an easy way to participate
incommercial real estate .
The best part: REITs must pay out 90% of its operating profits
as dividends in order to be exempt from having to pay corporate
incometaxes . As a result, most REITs pay frothy dividends. With so
many REITs available, I love the ones that focus on niche markets
One of the best opportunities in this space is
American Tower (NYSE:AMT )
. It is the largest independent operator of wireless and broadcast
communication sites. The company operates roughly 50,000 tower
sites in the United States, Latin America, India and Africa.
American Tower's largest customers are wireless carriers, including
Sprint Nextel (
and T-Mobile USA (a division of
Deutsche Telekom (
Although these tower owners operate in the same environment,
American Tower's 39.4%operating margin trumps competitors like
Crown Castle (NYSE:CCI )
SBA Communications (Nasdaq: SBAC)
(-29.3%). It also has higherrevenue per tower, along with less
exposure to weaker-margin network-development segments.
Thisstock has been on fire since 2009 and I don't see it slowing
down. Take a look at the chart below.
Why American Tower
The third quarter of 2012 was another solid period for American
Tower as it reported improved margins and another upward revision
of expectedearnings . Year-over-year revenue increased 13.2% to
$713.3 million, while growth continues to be fueled from its
American Tower's three biggest revenue drivers continue to be
Latin America, India and South Africa. This group reported more
than 40% core revenue growth, along with same-tower growth of 8.4%.
What impresses me is the fact that more than 90% of its new
international business is in the form of new leases rather than
This has been one of the main reasons American Tower has
delivered 35% annualized returns for its shareholders in the past
10 years. Last quarter, the REIT built 580 international sites and
acquired another 850, adding more than 12,000 international
communication sites to its already sizeable portfolio.
One look at the competition in this space and American Tower is
clearly the leader of the pack. A quick look at the table below,
and it's easy to see American Tower has superior margins, a more
diversifiedbusiness model , relatively lowleverage and a more
attractive price-to-earnings (P/E ) ratio.
Risks to consider:
American Tower faces the same risk as any tower company as
changes in consumer demand for wireless services, next-generation
technology deployments, or zoning and environmental regulations can
all affect the firm's profitability. It also has a large exposure
toemerging markets , which boosts its growth profile but also adds
risk and uncertainty. Another concern is that more than half of its
tower revenue is driven from the four largest U.S. carriers. If
there is a major disruption in spending for any one of these four
clients, then it could negatively affect revenue and thus
profitability. That being said, American Tower is still well
positioned to continue dominating its market.
Action to Take -->
This stock is a great combination of growth and income. Buy
American Tower up to $80 a share. It is currently trading around
$76 and could easily hit $100 a share within the next 12 months.
This one yields a small 1.2%, but has alot of growth potential as
it expands across the globe. American Tower also has the longest
contracts in the sector, giving the stocklots of visibility and
less day-to-day volatility, compared to competitors.