Stock Market Investment Ideas

Siri’s dirty little secret — those who know are already cashing in

Siri’s Dirty Little Secret

There is a new spin on an old pitch going around by the editors of Motley Fool Rule Breakers.  “Siri’s Dirty Little Secret. It’s about the only thing that Siri isn’t telling you..”  Of course this is reference to the Appple iPhone’s voice or speech recognition software based on Nuance’s innovative Dragon Naturally Speaking software.

Siri tells us just about everything, and we couldn’t believe that Siri was holding back anything from us.  Because, frankly, Siri and I have become quite close over the past few months.  So we decided to go straight to the source.  The conversation went something like this:

Me: Siri?

Siri: Hello Dave…

Me: Is there something you’re not telling me?

Siri: …….(cricket noises)

Me: Siri, do you have a “Dirty Little Secret?”

Siri: This is highly irregular Dave.

After the conservation between me and Siri churned in similar circles like this, and some awkward silences between the two of us, I decided to find the answer for myself.  What is Siri’s Dirty Little Secret?

We started by looking at some of the clues left us by Motley Fool.

  • Currently, it owns and operates roughly 39,000 “cellular transmission sites” around the world, which it leases out to all major cellular carriers at ever-increasing rates.
  • And not only is it the largest company of its kind, it’s also the most profitable.
  • Over just the past 12 months, it has cranked out a whopping $643 million in free cash flow — double that of its closest competitor.
  • Speaking of which, competition isn’t all that much of a concern here.
  • For one thing, favorable zoning laws in many of the places this company operates give it sole control of large amounts of territory.
  • For another thing, it sports much higher profit margins and a lower debt-to-capital ratio than any of its competitors.
  • And its abundant cash flow allows the company to reinvest in the business as well as expand to new countries and new markets.
  • And management just finished restructuring the company as a Real Estate Investment Trust (REIT) so that it can start returning the majority this cash to shareholders

It sounds to us like they are talking about cellular towers.  After all, with the continued rapid expansion of smart phones and smart devices, the amount of data that is sent to handsets will increase tremendously for the foreseeable future.  Let’s face it, it is quickly becoming a standard that you own a smart phone.  Parents are even buying them for their kids just to keep track of them.  And it is a social must have for teens.  This will mean that service providers will need to continually expand its capacity and range.  How do cell service providers keep on top of this?  By securing “cellular real estate” on any and all cellular sites or towers to be more precise.

We decided to take a look at some of the more prominent cellular tower companies in the United States.

Here is a top 10 list of companies who own towers domestically:

1

Crown Castle

22,251

crowncastle.com

2

American Tower**

21,644

americantower.com

3

AT&T Towers

10,312

atttowers.com

4

SBA Communications 

9,290

sbasite.com

5

T-Mobile Towers

8,782

t-mobiletowers.com

6

United States Cellular Co.

4,802

uscellular.com

7

Global Tower Partners

4,150

gtpsites.com

8

TowerCo

3,295

towerco.com

9

Mobilitie

2,586

mobilitie.com

10

Verizon Wireless

1,400

kgiwireless.com

After going through each of them, we narrowed down the selection to American Tower Corp (AMT).  Looking at the table above, you may be saying to yourself, “but they don’t own the most cellular sites”.  Here’s the thing, the table above only shows the amount of towers owned in the US.  And American Tower Corp, by far owns the most cellular towers in the world.  American Tower currently owns and operates over 38,000 communications sites in the United States, Brazil, Chile, Colombia, Ghana, India, Mexico, Peru and South Africa.  It also makes sense to think that most of the smart phone sales growth will be in emerging markets, such as S. America or India.   Also, American Tower has recently transformed into a REIT, which makes it an even more attractive holding for those looking to build their long term portfolio, because now it pays dividends, not to mention some of the tax benefits that go along with it.

Take a look at a recent chart on American Tower, you can see where they started to pay dividends at the end of last year.  AMT has had a nice climb in stock price

 

Really it comes down to who can secure the most cellular sites around the world, and American Tower Corp. seems to have a pretty well established process for doing so.  However, it may be a good idea to keep an eye on it’s competitors if you decide to add this one to your long term portfolio.

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