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“The Ultimate Wireless Winner … One Stock You Must Buy Before iPhone Fever Strikes Again”

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Today we’re looking again at a teaser from our old friends at the Motley Fool — this time, the Rule Breakers folks, led by founding bro Dave Gardner … and they’ve got what they think is a hot growth stock that you have to buy now, before the next iPhone comes out in a few weeks.

Here’s how they pitch it at the top of the ad …

“One Stock You Must Buy Before iPhone Fever Strikes Again

“It’s not Apple or AT&T, Verizon or Google. In fact, you’ve probably never even heard its name.

“Yet this behind-the-scenes company is so vital to the wireless industry that its shares have doubled time and time again since smartphones first hit the shelves.

“And soon millions of people everywhere, from Miami to Mumbai, will be racing to buy the new iPhone — meaning it’s only a matter of time before this stock takes off again.”

As you can imagine, they’re reserving the name and ticker of this particular stock for subscribers to Rule Breakers, which will run you $149/year. You’re always welcome to subscribe, of course, but if you’d rather hold on to your money (or invest it) we can dig in and see if this top pick can be gleaned from the pages and pages and pages of Fooleriffic clues.

The ad starts with an example, of a truck driver who got in early on the cell phone craze by buying up spectrum in a couple cities, becoming a millionaire in short order … and the ad says their idea is a similar one.

As they often do, the Foolies trot out some opinions from name brand folks to buttress their choice of stock … here’s that bit:

“Famed money manager Gary Kaminsky calls this company ‘a pure play on wireless growth’ and notes that it’s ‘generating tremendous amounts of cash with a very shareholder-friendly focus.’

“CNBC’s Lee Brodie says he likes this company because it’s ‘closely tied to an industry that’s poised to explode.’

“Oppenheimer analyst Timothy Horan says that of the select few companies that operate in this extremely important wireless niche, this one is ‘not only the biggest but also the best managed.’

“And apparently he’s not the only one who thinks so…

“Harvard Business Review recently named this company’s longtime leader one of the ‘Top 100 Best-Performing CEOs in the World.’

“Nevertheless, you might be wondering if you wouldn’t just be better off investing in a well-known giant like Apple or AT&T.”

Of course, they don’t think Apple or AT&T is the way to go for investors now … this company they’re teasing is apparently broader based …

“… this company doesn’t own, license, or lease spectrum — but it does provide behind-the-scenes infrastructure that is absolutely crucial to the functioning of virtually all cell phone networks…

“Meaning its value isn’t dependent on the success of any one cell phone brand or carrier.”

And then we hear all about how wireless bandwidth demand is climbing dramatically thanks to smartphones, and the providers need to expand their networks to keep up, which I think we’ve all been hearing ever since the original iPhone almost crashed AT&T’s networks in some cities.

So how about some more specific clues? They oblige, thankfully:

“… the company I’m writing you about today stands head and shoulders above all the rest!

“Currently, it owns and operates roughly 27,000 ‘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 $630 million in free cash flow — nearly 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 does 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.

“Lately there’s even been talk about restructuring the company as a Real Estate Investment Trust (REIT) so that it can start returning some of this cash to shareholders.

“In fact, in a recent interview on CNBC’s Fast Money, the company’s CEO confessed that he believes that ‘dividends will be paid in the next two to three years.’

“As investment legend Gary Kaminsky pointed out after that interview, there are ‘very few companies that can grow and return capital to shareholders.’”

So who are we talking about here? Well, we put all that info into the mighty, mighty Thinkolator, let it cogitate for a bit, and we learn that this is …

American Tower (AMT — click here for the free instant analysis of AMT from Marketclub, one of my advertising partners … just FYI, they say the trend pretty well stinks right now)

Ugh … no, not the company, the ticker, I keep getting stuck with the AMT when I file my taxes and it’s profoundly irritating.

The company is, as you might guess, a great one — but it is dang expensive. American Tower owns a huge portion of the gazillions of cell phone towers and other transmission sites in the US, and is also expanding quickly in India, Brazil and Mexico. They usually lease the site for their tower for a long term, build the tower and pad and set up space for ground equipment for their tenants, then fill the tower with antennas and other equipment for as many tenants as they can squeeze on. The tenants lease that space for long terms, usually five years with high retention rates as they keep renewing their leases with inflation boosts, and they can add more and more tenants until the space on the tower is maxed out — but the tower never gets more expensive and it has very limited maintenance costs, so the margins get higher and higher for that tower as they add antennas or clients. The company’s overall operating margin is a delightful near-40%, which is pretty nice for such an asset-heavy company that owns real stuff… but as I said, it’s expensive, and usually has been expensive throughout much of its history as a public company.

The current trailing PE is 57, the estimated forward PE is 38 based on guesses that they’ll earn $1.04 in 2011 (on the 2010 earnings guess the PE is 46) — as to whether the analysts know what they’re doing with AMT, the company blew out earnings estimates in the first quarter this year but failed to meet estimates twice last year, so it’s probably tough to estimate their quarter-to-quarter performance.

If you’d like to get a quick overview of the details of American Tower’s business, and why it’s generally so stable and profitable and why the stock trades at a lofty multiple, they made a thorough presentation at an investment conference back in March and you can see the slides here [pdf file] (that was before the last earnings release).

And as to the “expensive” notion … well, that’s what David Gardner likes. He has set up the Rule Breakers newsletter to follow his philosophy, which he says relies on these six keys:

The company needs to be a Top Dog and First Mover … from the ad:

“A ‘top dog’ is a company that dominates its industry… and a ‘first mover’ is a company with a technology or product so revolutionary that it disrupts an existing industry and creates an entirely new one.”

And it needs to have the following qualities, as explained here in the ad:

“… a sustainable competitive advantage that can be exploited for years to come (like exclusive rights to highly in-demand cellular transmission sites all around the world)

“strong past price appreciation (like 5,000%+ gains in under a decade)

“excellent management (like a long-standing CEO who top-notch equity analysts and the Harvard Business Review alike have called out as being one of the best in the world)

“strong consumer appeal (like being the top behind-the-scenes provider to one of the world’s most in-demand industries)

“And here’s the big one…

“documented proof that the financial media thinks it’s ‘overvalued’

“Recently, I’ve heard this company’s valuation called everything from “frothy” to downright “expensive” (even though shares have pulled back a bit, thanks to the recent market volatility)”

That “proof that the media thinks it’s overvalued” bit always seems like the funnest part of Dave Gardner’s shtick — he seems to love to pick growth stocks that he thinks will explode, but that most pundits are afraid of because of lofty valuations. It obviously doesn’t work all the time, and the example picks they provide in the letter of past Rule Breakers winners that have had huge runs were largely small cap stocks, not behemoths like American Tower ($16 billion market cap, plus a few billion in debt), so although AMT is very profitable, expanding internationally (particularly with some appealing acquisitions in India to boost their total to 7,000+ towers there), and likely to return cash to shareholders with buybacks and, possibly, a dividend someday … it’s hard to see it being a near-1,000% winner like Intuitive Surgical or Baidu over the next few years. That’s not to say it’s a bad pick, of course, just that it’s different from some of their recommended breakout small caps that became mid caps over the years.

As for the Rule Breakers newsletter in general, as you might expect from a growth stock letter it had a great year following the crash of the market and a terrible year as the market was crashing — they’ve been around for at least six or seven years, and most of the Fool letters hate to sell stocks, so they probably have at least 50-60 stocks in their portfolio right now, all of which will be growth-focused and most of which are probably quite a bit smaller than American Tower. Hulbert pegs them at about a 12% annualized return for the last five years, which is better than any other Motley Fool newsletter (and in Hulbert’s top 20 for that time period), though it’s worth noting that your mileage may vary — some of their picks, like BIDU and ISRG, did a lot of that heavy lifting — this style of investing often seems like home run hitting, looking for a few massive hits and getting lots of strikeouts in any given time period, though I’d wager that American Tower will probably be less of a “big swing” given its already large size (and, of course, probably also less of a risk, despite it’s high valuation).

Stock Gumshoe Reviews surprisingly boasts only a single review of Rule Breakers right now (if you’ve subscribed, please click here to review it for us), though we have dozens of reviews of other Motley Fool letters for your perusal, should you be so inclined.

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43 Responses to “The Ultimate Wireless Winner … One Stock You Must Buy Before iPhone Fever Strikes Again”

  1. Just an industry tip. The tower real estate business has taken a hit with the shutdown of analog TV – Stations are reducing their antenna installations. And on the biggest, highest, most expensive lease positions. I do not know how much of AMT business is devoted to cellular vs TV broadcast though.

  2. I prefer Quicklogic (QUIK) which has a new chip in the next iPhone as well in the upcoming Dell phones and will be in virtually all the Qualcomm based smart books. And QUIK is less than $100 million mkt cap.

  3. Londonian – are you sure we should try to find a broker who can trade on the London Stock Exchange? Are you suggesting that the market in Europe, and – indeed – the UK, is ready for a rebound? Wouldn't we need that to push up stocks like your ARM and IMG?

    I think I will stick to what is pretty obvious here: Buy AAPL on pullbacks. Another trade: recently, you could receive $4 or more on selling the 195 puts for July on AAPL. I would be willing to buy Apple @ 195. How about you?

  4. I wouldn't go with ARM since Apple is now designing and making their own phone chips. The chip in iPad is an Apple chip, and according to all reports they are using the same Apple chip in the upcoming iPhone. That seems to bode ill for ARM even though I think their designs are still riffs on ARM and may still require royalties to them.

    D

  5. Yeah, ARM is tough to recommend without reservation. Intel has targeted ARM pretty aggressively, though they haven't quite hit the same benchmarks regarding power use.

    There's no doubt a huge market going forward for mobile chips, but it's an area so focused on innovation and cutting edge that game changers are a real possibility, and there's no shortage of companies looking to take that role.

  6. Travis, re: AMT symbol matching the dreaded Alternative Minimum Tax! , Several years ago, when I had to file the form, I scratched out the word 'Minimum' and wrote in 'Maximum'

  7. Ditto thank you. The concept of playing " a=known to be applying for uplisting" or "b=just recently announced to be uplisted" is interesting. Especially if the knowledge is learned before most of the investment world gets the knowledge. That begs the question is there an internet source which lists a and/o b in a timely manner? Anyone know of such?

  8. The Motley fool never talks about the money lost by their rule breakers before the crash of 200-2001. I followed many of their absolute "winners" and lost over 2 million dollars!!!
    Why would anyone now expect their credibility to be any better than arbitrary and or capricious?

    Mesmd

  9. The true value in Motley Fool is the online communities. There's a lot of great info from all the "average Joe" investors. Other than that, Fool is a company trying to make some money.

  10. i an very new to investing and i was leaning towards motley fools recommendation of ATM. my dear investing wife saved my butt by finding this article. many thanx for the info. but help me out fellow contributors…is Amt still a stock to watch and if so what do i watch for

  11. I'm willing to bet that the only reason why AMT has been up over the past six months is because Motley is pitching it. Our money is on Apple and Google for the long haul. Of course we diversify with other investments. But, we are always throwing more money at Apple and Google!

  12. Apples run up is a bubble for sure. When markets correct apple will correct hardest of all. I made th oberservation that how can any company be worth the kind of valuations some of the megacaps are without solving the problems of a world in which millions or even billions of people are starving? The profits themselves suggest abubble some 4 dollars for every man woman and child on the planet, 75% of which have never even seen a computer let alone an "ipad" something has to give.

  13. Jules……………………… what on gods green earth are you talking about…….?????????/ "The profits themselves suggest a bubble some 4 dollars for every man woman and child on the planet……….." Those kinds of profits are exactly why apple is the 2nd largest company in the world and very soon to be the largest….. why is this so difficult to believe………

  14. Wireless advances could mean no more cell towers

    (AP) – 6 hours ago

    NEW YORK (AP) — As cell phones have spread, so have large cell towers — those unsightly stalks of steel topped by transmitters and other electronics that sprouted across the country over the last decade.

    Now the wireless industry is planning a future without them, or at least without many more of them. Instead, it's looking at much smaller antennas, some tiny enough to hold in a hand. These could be placed on lampposts, utility poles and buildings — virtually anywhere with electrical and network connections.
    http://www.google.com/hostednews/ap/article/ALeqM

  15. If you are going look at AMT, you need to compare it to CCI and SBAC. Personally, I consider CCI to be the better company, even if their financials aren't quite as good as AMT's.

  16. more honest and more reliable is Jason Kelly – check out his book. and he only charges about $6 for his newsletter that comes out once a week and give recommendations, etc. if you read his book and check his website you'll see why

  17. It seems only reasonable to believe that towers will eventually be replaced by something else, as has been suggested. The key then is to know when to get out of AMT, unless they lead in the replacement technology too. Problem is, when?

  18. I like CRUS d/t AAPL connection now and future. look at this one. BTW motley fools like it too. so far so good had hit 25 which was sell point,. but long term aside from being dead, this stock has al it all: good mgmt, producrs, no debt, low pe. look at it and decide.

  19. Thanks to everyone & Gumshoe for trying to help us make more money while wall street rips off the world and most importantly, the US tax payers who helped them out of their self made big mess.

  20. Here’s a few questions: What happened from 2000 – 2002 when they went from a similar sized peak to less than $2.00/share? Then what happened in 2008? This thing just looks volatile.

  21. FYI: More Problems Coming For American Tower
    http://seekingalpha.com/article/344161-more-problems-coming-for-american-tower?source=yahoo

    This week’s news from the Supreme Court of India that all 122 operating licenses which the Ministry of Communication had issued since 2008 were revoked, has effectively caused immediate consolidation in the Indian cellular market. For a company like American Tower (AMT), which pinned its growth strategy to co-locating multiple tenants on your newly acquired Indian towers, this is extraordinarily bad news…

  22. just getting my feet wet again after a steep learning curve from the high tech a decade back., lost plenty not doing my own research :o~ No Thanks to following the glitter of
    Motley’s ad after research on American Tower… what do you think of Larcan?
    What companies promote and assist the creation of open source community owned broadband? I want stock gains of course but investing in companies that will benefit me and my community today AND in the future. And what about an realistic company with alternate fuel? I live in hawaii..big oil is leaving but we have lots of green waste?

  23. “Apples run up is a bubble for sure. When markets correct apple will correct hardest of all.”
    If you had bought shares of Apple the day after this post was written you would be up 68% as of today.

  24. I think if I had bought Apple anytime before 6 months ago, I would sell and take the profits. I’m not an options guy, but Apple is definitely an options moneymaker now. There are many holders of Apple that made XXXX% profit, why lose any of that? Anything could happen in the middle east and cause the market to tank….and Apple is selling a mostly discretionary product. Correction could be $100plus and one would have had that as an easy profit.

  25. Can’t believe the M Fools are still trying to sell their newsletter subscription with this video (July 2012) over 2 years after they spoke pushed the stock.
    AMT has done its run, could there be more upside? Stockgumshoe’s comments are good – better to look at the facts like than to gamble on speculation. The Fool sometimes try to create a self fulfilling prophecy due to their large email database, not necessarily all subscribers.

    • I can. Send me all of your money. Seriously, if you’re interested in investing, go to Investopedia and read their guides. After a week of 2-3 hours a night, you should be able to get started doing your “technical” and “fundamental” analysis, and those two terms are where it all starts. Also remember that you can spend literally hours in front of charts and doing “fundamental” research on companies, picking your own stocks,and trying to beat the market, or you can invest in a good solid index fund and make more over time than any managed fund or single stock–unless you’re lucky. Even top brokers make around 15% over time, if they’re lucky. Buffet is an exception, I think the last 20 years Berkshire Hathaway has made about 18.4%. So, think you can beat those guys? Good luck.

      “Over the [past] 35 years, American business has delivered terrific results. It should therefore have been easy for investors to earn juicy returns: All they had to do was piggyback Corporate America in a diversified, low-expense way. An index fund that they never touched would have done the job. Instead many investors have had experiences ranging from mediocre to disastrous.”– Warren Buffett

  26. I just received the Motley Fool’s email. Wow, was I excited about making money. I have never purchased stock and know nothing about it. I just stumbled upon this site and read the comments. Thanks for keeping me from making a big mistake! Since I am a newbe, can anyone help me get started?

  27. I dunno – ARM has gapped up 4 days in a row. Check out the chart. ARM customers are worldwide, mainly SE Asia. It barely trades in the UK.

    No, nothing wrong with AAPL – might take a bite myself.

  28. Personally, I've been buying, selling (taking profits), and re-purchasing AAPL, BIDU, TSLA, VZ, JO and a few others (off and on) and making money…consistently. Buy JO before winter months to capitalize on it's surge in price then sell before summer (JO is coffee).

  29. ARM doesn't sell the chips, they license the IP (processor design + other logic) that other companies integrate into chips.

  30. Since when are valuations based solely on what a company has done to solve world hungar? Your arguement makes no logical sense. Do you have data to support such a correlation?

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