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- Business Insider spoke to the eight best-performing fund managers of 2018 to get their best investing recommendations for 2019.
- Three of the investing heavyweights argued in favor of the same theme, which they all swear will yield major stock returns in the year ahead.
In order for a money manager to reach the absolute apex of theinvestingfield, they have to make decisions that stand apart from their competitors.
After all, if everyone is piling into the same areas of the market, it’s difficult to stand out.
But threetop-ranked fund managers interviewed by Business Insidernamed the same overlooked segment of the stock market as a top pick for 2019: cellular towers.
Each individual provided an impassioned explanation for their recommendation. Ultimately, the major takeaway from all three discussions boiled down to a couple simple facts.
First, wireless telecom providers are moving toward 5G networks, and they’ll need somewhere to hang equipment. Second, existing cellular tower companies are already essentially local monopolies, so all upgraded 5G technology will have to filter through them. And third, they’re defensive businesses relatively insulated from external market forces.
See below for full explanations from the top-ranked fund managers who identified cellular towers as a major investment theme for 2019. All quotes attributable to the investors highlighted in each section.
Chris Smith, founding portfolio manager of the Artisan Thematic Fund (ARTTX)
“We like SBA Communications (SBAC), American Tower (AMT), Crown Castle (CCI). We like the tower companies, because they’re very high recurring long-term revenue stream companies, and they own all the wireless towers in the US.”
“As we move from 4G to 5G networks, the likes of Verizon, T-Mobile, and Sprint are all going to spend a lot of capital. And this is all because of data consumption and use. That will really benefit the towers, because as you move to a network and put new antennae on the towers, they get automatic rent increases. That’s a very stable, safe business that’s accelerating from here, and should grow faster in 2019 and 2020.”
“These are accelerating business models that aren’t really economically tied to the economy, and still fit with our themes of what’s going on with the world. We’re trying to move towards safer business models like that, which we also think offer a lot of upside, and have businesses that will actually grow faster over the next year.”
Kyle Weaver, lead manager of the Fidelity Advisor Growth Opportunities Fund (FAGAX)
“It can be tricky to find companies with business models that will directly benefit from big shifts. Wireless data is a great example of that. Growth has been exponential for a number of years, and it continues to be a huge theme, both as consumers and investors continue to proliferate.”
“But you can’t just go buy AT&T and Verizon. That’s not the most beneficial way to exploit that theme. The better way to play that is through the tower companies, likeAmerican TowerorCrown Castle. The carriers needed to compete with each other to hang stuff on the towers, which meant more revenue for the towers. And then once equipment is up there it stays there.”
“American Tower kind of proves how boring is beautiful. The tower business model hasn’t changed in the multiple decades it’s existed. The company’s business model is simply to collect rent from telecom carriers that need to put equipment on those towers in order to get signal to their customers. The contracts are 5-10 years long, and they come with 2-3% price increases every year.”
“Each tower is like its own tiny local monopoly. For that area of your neighborhood, there probably isn’t another spot to put that equipment, which gives the tower companies a pretty unique advantage. And nobody wants new towers built in their area.”
“Ten years ago, you could sit back and say wireless data would be a huge demand driver for carriers. Understanding the business model for the tower stocks, you could look out and see it was only trading at 3 to 4 times earnings 8 to 10 years out, and that’s been what’s come to pass. The stock is $160 instead of $30 now as it’s traveled up with earnings growth.”
“AMT has differentiated itself from other tower companies in the US by investing abroad in emerging markets like India and Nigeria, where wireless data growth is on an even steeper growth trajectory.”
Joe Hudepohl, principal portfolio manager of the Eaton Vance-Atlanta Capital Focused Growth Fund (EAALX)
“American Tower is a cell tower business whose opportunity was created by the market environment. It’s probably one of the most consistent businesses out there, because of the long-term growth in the demand for cell service. The only way to do that is to continue hanging more equipment on the existing cell infrastructure. American Tower is a huge beneficiary of that.”
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