We’ve got a lot of choices when it comes to teaser pitches this week, including some ratcheted-up reruns from Dr. Kent Moors reiterating his older Permian Basin and Solar Energy pitches, some CBD stocks, and a few others that are generating attention… but the one that caught my eye was from a smaller publisher, Motley Fool Canada, so I thought we’d start with that one… mostly because, well, seeing Bill Gates make big bets on the future of technology sounds interesting, right?
The headlines I received questions about were things like “World’s 2nd richest man bets $650m on 1 stock” and “Microsoft founder just bet $650 million on this little-known company” … and though Bill Gates is certainly far more well-known for his business success than his investing chops, and doesn’t probably do much when it comes to the actual stock-picking in his portfolio, it’s still a tempting tease.
In case you’re curious for a little back story, Bill Gates’ money, which is actually mostly in the Bill and Melinda Gates Foundation, is managed by Michael Larson and his Cascade Investments, so you’ll generally see the foundation or Cascade as the “owner” who pops up in the SEC filings when you’re looking for stocks connected to the Microsoft founder and longtime holder of “world’s richest man” title. Thanks to Buffett’s major gift to the foundation, roughly half of the foundation investments are in Berkshire Hathaway shares and much of the rest is in a few very large “blue chip” type companies — Waste Management, Canadian National Railway, Wal-Mart, and, yes, Microsoft.
But what, pray tell, is this $650 million stake they’ve taken?
Here are the clues we get in the email ad from Jared George, which is peddling subscriptions to their Stock Advisor Canada newsletter ($149/yr, modeled after the US flagship Stock Advisor newsletter from the Motley Fool, though in this case alternating US and Canada-listed picks):
“Bill Gates has quietly picked up 5.3 million shares of one under-the-radar company with the keys to a startling new technology.
“His total investment adds up to more than $650 million in cold hard cash…
“And it means investors like you and I should be paying very close attention.”
OK, I know nobody wants to do math on a Monday morning… but still, if Gates investment adds up to more than $650 million and he controls 5.3 million shares, you can use plain old division to get the rough share price of the company being teased.
No, leave the calculator in your drawer, we’ll do it for you — the rough hint for the share price, then, is “more than $122 per share.”
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And we get the typical embellishment:
“… besides being the co-founder of Microsoft, Gates is also one of the richest men in the world with a $100 BILLION net worth…
“And when he puts this much money behind something, you can bet he sees immeasurable profits ahead.”
I don’t know about that. Yes, I’m sure he thinks it’s a fine investment… but his mind is on the Foundation and improving the world these days, I don’t imagine he’s spending a lot of time forecasting whether Michael Larson’s stock picks are going to beat the market or not and I doubt he’s spending a lot of time swinging wildly for “immeasurable profits.”
But I digress… do we get any other clues?
“Gates isn’t alone in seeing a potentially enormous opportunity here…
• SoftBank is investing $1.8 billion into this technology
• Trump just announced the government’s plan to invest $20 billion into it
• Apple CEO Tim Cook says this technology ‘is on everybody’s roadmap'”
OK, so those aren’t hints about a specific company — they’re general clues about 5G, which, yes, everyone and his brother is investing gajillions of dollars into the upgrade to this next leap forward in mobile networks (and, of course, 5G leadership is the elephant in the room when President Trump and Premier Xi are arguing about trade and Huawei).
Other hints about this stock?
“… we believe one stock poised to profit the most from this ground-breaking technology is NOT Microsoft, Apple, or any of the companies you’d expect…
“But is actually the exact same company Bill Gates himself is personally investing a fortune into.
“Because this little-known company already owns an arsenal of assets that will be absolutely essential to bring this technology to the market.”
And we get one other tidbit:
“… its stock has already earned investors 1,134% returns over the past decade alone”
So this is a stock that has done well, and is probably a pretty big company — big enough for the Gates Foundation to have a largish position. Where do those clues send us?
Well, since it’s a sunny day they send me straight out to the Thinkolator, though it took just a few seconds to shovel in those clues and get our answer out the other end… this one is Crown Castle (CCI), one of the cell tower REIT companies.
And, yes, it’s a stock I also own — though there’s a lot less of it in the Real Money Portfolio than there is in the Bill and Melinda Gates Foundation portfolio (even on a relative basis — Gates has about 3% of the foundation’s 13F-reported investments in Crown Castle, yours truly is right around 1%, mostly because I’ve been a little too chary with the surge in valuation this year… though that’s not the same as saying he “invested $650 million,” more on that in a minute).
But yes, the reason to invest in Crown Castle is because their telecom infrastructure should be critical for the continuing growth in wireless networks in the US… and, particularly, for 5G as they build out both small cell locations (5G is much shorter-range than 4G, so requires many more antennas, much closer together, which is one of CCI’s real focus areas) and provide a strong foundation for those small cells by tying them in to fiber networks for backhaul.
There are a few tower operators of meaningful size, and they’re all pretty expensive and have all converted to become Real Estate Investment Trusts for the tax benefits — American Tower (AMT) is the leader both in size and international scope but pays a paltry dividend, SBA Communications (SBAC) also has substantial international holdings but was a turnaround until recently and, though it has converted to REIT status, had such large carryover losses that they won’t have to pay a dividend for years. That, in large part, was why I settled on CCI as my favorite in the bunch — a decent-size dividend, meaningful dividend growth (should grow at 7-8% a year, current yield is about 3.5%), and good small cell exposure in the US without the currency fluctuations (or growth potential) that SBAC and AMT bring from their foreign operations.
To be fair, though, none of the tower REITs have really been what you’d call “cheap” for years. In CCI’s case, their guidance for funds from operations (FFO, a cash flow measure used by REITs that investors usually see as more useful than earnings, which are far lower because of depreciation) provides for about $2.3 billion in 2019, or $2.4-2.45 billion in adjusted FFO (AFFO). They prefer AFFO, and that’s what analysts generally seem to use, so that means the stock, with a $55 billion market cap, is now trading at something like 22X AFFO.
Still, that’s cheaper than American Tower, which trades at 29X their expected 2019 AFFO (AMT is, to be fair, growing faster — their revenue growth advantage has shrunk over the past year or so thanks in part to the strong dollar, but their dividend growth is much better — 20% dividend growth over the past year, and they tend to increase it a bit each quarter, though the current yield is only 1.6%). I think of CCI as more of a “steady eddie” than AMT and SBAC, but over the past five years it has also trailed the other two much of the time… here’s the five-year total return chart:
And the one-year:
My hope had been that CCI (and the others) would see a meaningful dip this year as fear about the potential Sprint/T-Mobile merger puts a dent in their revenue expectations… but that no longer seems terribly likely. The merger might or might not go through, but it looks like government approval will hinge somewhat on the companies spawning off enough of their assets to make room for a fourth player to come in… and it’s pretty clear that even with a merger they’ll have to operate two overlapping networks for a long time, and that investment in 5G could easily be enough to ameliorate the impact of losing one of their major customers.
I continue to like CCI, mostly because of the US focus and the steady growth in the dividend and the decent-size payout, and the likelihood that demand for small cell and tower locations should keep growing over the next 5-10 years… though I also continue to think it’s pretty expensive. And though it has been a successful investment for years, it has clearly, in retrospect been a poor choice relative to AMT.
Don’t get too excited about the Gates position, though — I didn’t go back and check all the SEC filings, but WhaleWisdom indicates that the Foundation has owned CCI since 2007… and started buying it at about $36. I don’t know if they added to their position at all along the way, but the roughly 5.3 million share position that the Gates Foundation has in Crown Castle has been static for at least five years (that’s as far back as I checked)… this is in no way a new or exciting or aggressive investment for Bill Gates, and while it’s worth more than $650 million at this point it didn’t cost the foundation anywhere near that much because they built their CCI investment at far lower prices. It’s probably fairest to call it a “hold” if you’re assessing the Gates Foundation sentiment… and that’s probably true of most of the large positions in the foundation, most of which pay decent dividends that probably help to fund the foundation’s work.
All the tower stocks have been hot of late… they even got the “Jim Cramer” treatment a couple weeks ago, so I’ll share that video clip with you in case you want a pitch about the cell tower business with a few of his bells and whistles (at the time, CCI was Cramer’s favorite as well — though take that with a grain of salt)…
These are companies that build and own real stuff, so they can’t magically grow at nosebleed rates… but they are in a sector where supply is hard to add, and where we should see substantial growth in demand over the next 5-10 years, and the recent trend toward falling (again!) interest rates helps to make the relatively small yield look more appealing and makes REITs of all kinds seem sexier (and, probably, helps them to reduce their borrowing costs… all of the tower REITs carry a fair amount of debt). I’m happy with my small CCI position, and wouldn’t try to talk you out of any of them… but these are big and richly valued names, they’re all at all-time highs, and they’re not going to make you rich overnight.
So that’s what we’ve got for you today — yes, the Bill and Melinda Gates Foundation owns a big chunk of Crown Castle shares… and no, they didn’t just buy them recently or place a big bet on this likely 5G-enabler (in fact, they really started to buy the stock back when 4G was rolling out at scale). I like it, too, at least enough to start a position and hope for dips to maybe commit to a larger stake…
…. but, well, it’s your money… which means it’s your call. Want a piece of Crown Castle? Prefer other tower REITs or 5G plays? More excited about Gates’ other investments, or about Microsoft itself? Let us know with a comment below.
P.S. I should note that the email ad hinting at CCI included a link to a promo from Motley Fool Canada, which itself hinted at a different stock that’s a favorite recommendation of Iain Butler as one of the “nuts and bolts” plays on 5G. That one is definitely not CCI, so I suppose they have more than one stock they like in this trend… that includes this little hint, for example:
“what has Iain Butler and his team of analysts especially excited about this company is a recent announcement by the CEO himself.
:Because this CEO explained how a cutting-edge innovation that the company just released is ‘enabling the next-generation of wireless communications’ and ‘powering new usage cases from autonomous vehicles to emerging segments in artificial intelligence, robotics, and virtual reality.'”
That and the other clues point directly at Skyworks Solutions (SWKS), which has also been teased by other pundits in the past. That one is pretty cheap, though they share that distinction with a lot of other challenged semiconductor companies who’ve been hit by the Huawei stick in recent months. If you’d like to read more about that one I last covered Skyworks, which I continue to think is looking interesting but which I don’t own at the moment, in this piece about a Jeff Brown teaser last month.
Disclosure: Of the companies mentioned above, I own shares of Apple and Crown Castle. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.