5G “Tollbooth” Stock to Climb from $8 to $68 in Five Months?

What's being teased by Briton Ryle for The Wealth Advisory? His "Special Report" is titled, "Make 1,000% Gains From the 5G Tollbooth."

By Travis Johnson, Stock Gumshoe, February 13, 2020

Briton Ryle at The Wealth Advisory loves to tout the dividend-paying stocks that underly some big trends, and, of course, to hint at them in misleading ways to make them seem every more secretive and special… which doesn’t mean the stocks are necessarily bad ideas, but does mean we should dig deeper and understand the risks and the real story.

The two that have been pushed hardest over the past several years have been his pitch for getting something like royalties on Netflix and Google, which was just a tease about buying a data center REIT (CoreSite, as it happens, a stock I’ve also held for a long time); and, more recently, his pitch about getting back door “Prime Profits” payments from Amazon, which was a tease for the industrial REITs who own warehouses that are leased to Amazon (ProLogis was the clearest one). Those are fine companies, with relatively low risk but, of course, high valuations recently (REITS have been bid up dramatically over the past few years, especially specialty REITs with good dividend growth), and nowhere near as direct a connection to sexy high-growth ideas like Netflix and Amazon as was implied.

I’m sympathetic with the basic strategy, and have had a lot of success with many of the specialty REITs over the years even if the “story” pitch he uses is often pretty ridiculous, so in several cases The Wealth Advisory has also been touting stocks that I already own… which means I’m always curious to see what the next one might be. So with that out of the way, what’s the next big spiel from Ryle about? It is, of course, a play on another hot story — in this case, the buildout of 5G mobile networks.

Here’s a bit from the top of the ad:

“5G ‘Tollbooth’ Firm Makes America’s Largest Media Companies Pay Through the Nose

“Comcast, Verizon, T-Mobile, and even the Department of Defense will have to pay this company a ‘toll’ to use the 5G network

“It trades for $8 right now… but I expect it to climb to $68 in the next five months…”

That sounds an awful lot like the many, many teaser pitches we’ve heard about one or all of the “big three” cell tower REITs (American Tower (AMT), Crown Castle (CCI) and SBA Communications (SBAC))… but none of them have sub-$100 share prices, let alone $8. So at least we’re going to hear something a little different to cut through the boredom of “yep, it’s another pitch for AMT.”

And, of course, it’s super-secret (why else would you pay The Wealth Advisory $49 for the idea?)…

“… this little firm is leading the charge to 5G.

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“Even the U.S. government knows it — which is why they’ve decided to partner with it.

“But you’ve likely never heard this company’s name.

“Actually, almost no one has.”

We’re told that this company has already inked deals with the big cable and telecom firms…

“They’ve signed almost ten billion dollars worth of contracts with this little tech firm, and once that money starts rolling in, I expect this stock to be trading for at least $68 a share.”

He also makes the “we need more towers” argument that we often see with 5G chatter — mostly because the part of 5G that uses millimeter wave higher frequency spectrum can’t travel as far or get through obstacles….

“These “M-waves” can’t travel very far from their source (only about 1,500 feet before the signal dies out). And they can’t travel through things, like trees or mountains or buildings.

“So, if we used the towers we have now, you wouldn’t be able to get a 5G signal unless you could actually see the tower the signal was coming from. Can you imagine dropping a call every time you walk under a tree?

“But this company has figured out a way around that….

“Instead of sending everything from one big tower directly to you, they’re going to use a bunch of tiny antennas to relay the signal to you….

“These new antennas will be about the size of a small refrigerator, like the kind you might find in your room at the Holiday Inn.

“So even though the signal will still initially come from a giant tower, it will bounce off of these smaller antennas to get around anything in its path.”

OK, so that’s part of the standard 5G narrative as well — we’re told that large networks of “small cell” antennas need to be deployed (and are being deployed, especially in urban areas… Crown Castle in particular among the tower REITs has built out a huge network of them already).

So what does this company have that will make these small cells possible? More from the ad….

“… it already has the infrastructure in place that’s required to get these 5G antennas up and running….

“This firm already has an extensive nation-wide fiber network that’s up and running.

“And this network is going to be the lifeblood of 5G.

“It’ll just take these new smaller antennas and attach them right to its fiber network. It’s a simple plug-and-play move.”

And we’re shown that the fast fiber network this company has gives them a big advantage, with more fiber route miles than anyone else — apparently they have 5.6 million miles of fiber in the U.S., which is much more than AT&T or Verizon or the other telecom companies he lists….

“These other companies don’t have nearly as much network laid out as the one I’ve been talking about. And that’s why a lot of them, like Comcast, Windstream, and Verizon, are actually already paying the ‘tolls’ to use this network.”

Ryle even uses the same spurious “5G winners are already starting to climb, don’t miss the boat” examples that Jeff Brown used in an ad last year

The three examples he cites are Galaxy Next Generation (GAXY), Ameristar (AMWK), and Global Energy Networks (GBNW), none of which are what I would call “real” companies — they’re thinly traded penny stocks with no real business or revenue, and they all did have spikes up in their share prices… but those were almost certainly the result of “pump and dump” manipulation that is so common in such tiny names, none are actually connected to 5G in any real way and all of them gave up those headline-generating “gains” of 1,000%+, in most cases almost immediately.

So why are those examples in there? To impact you, dear reader — to make you daydream of 1,000% or 8,580% gains… if a copywriter can get you thinking about life-changing returns, it becomes ever easier to get you to open up your wallet and pull out the credit card to subscribe to The Wealth Advisory. After all, if you’re daydreaming about turning $500 into $58,335, well, what’s $49 for a newsletter subscription? Chump change!

And that’s about it… so what’s the stock? Thinkolator sez, using the handy little route map he provides for confirmation, that this is a pitch for Uniti Group (UNIT).

Which you might not have heard of, I don’t know, but it was essentially created as a REIT spinoff from the big rural phone company Windstream, which spun off its tower and fiber assets into this new company in early 2015.

Here’s how they describe themselves:

“Uniti, an internally managed real estate investment trust, is engaged in the acquisition and construction of mission critical communications infrastructure, and is a leading provider of wireless infrastructure solutions for the communications industry. As of September 30, 2019, Uniti owns 6.0 million fiber strand miles, approximately 630 wireless towers, and other communications real estate throughout the United States.”

And, as luck would have it, Briton Ryle has in fact teased this one before — though that was when the company was still fairly new in mid-2016, and it had a different name at the time, it was called Communication Sales and Leasing (ticker CSAL) — they changed names in the Spring of 2017, when they expanded with the purchase of Hunt Telecom. This is how he teased that same stock back in early 2016…

“More recently, I was looking into mobile Internet infrastructure (i.e., smartphone data/Internet), and, lo and behold, I found a fantastic REIT that owns cell towers, fiber loops, and some data center stuff. The stock was selling for around $16 a share, and the dividend was a lofty 15%….

“That dividend was completely covered by one big contract the company had. And the potential for the company to sign more deals with new companies meant that the already big dividend could get even bigger! So I recommended it to Wealth Advisory subscribers, too. And we’ve got 91% gains since February.

[He even quotes a panning that this mystery stock got from gaga guru Jim Cramer over at CNBC:]

“It’s got too high of a yield. It makes me want to worry that it shouldn’t be a red-flag situation. They shouldn’t be that big. If the company wants to come on and talk about it, that’s fine. But it’s not my cup of tea.”

So if he recommended it at $16, it was looking pretty prescient a few months later when he was teasing it at about $30 a share… but, in fact, you’d still have ended up with a fair amount of disappointment in the ensuing years because Uniti really fell apart with the ongoing bankruptcy filing by Windstream, by far their largest tenant. The stock had its last big drop in early 2019 when it finally succumbed to logic and slashed that massive dividend (from 60 cents a quarter to five cents), and the stock went from about $20 down to $8… over the past year it’s mostly been in that $8-9 neighborhood.

But that’s all water under the bridge… what’s the story now?

Well, one reason that Uniti is priced so low relative to its assets and revenue is that Windstream is very much still an uncertain story — they’re not going away, someone has to operate those telecom networks, but it remains to be seen how much Uniti is owed by Windstream under their leases. There’s an interesting column on the legal issues from a SeekingAlpha contributor here, I have no idea how it will turn out but there’s obviously risk — the trial is supposed to start next month, though the dispute over what Uniti is owed might be settled before trial.

And the other major risk is that Uniti carries a ton of debt — their debt burden is dramatically larger than the other major telecom REITs, so the $1.6 billion or so of Uniti equity that’s owned by shareholders is really dwarfed by the $5-6 billion in debt. They do own a lot of assets that are valuable, but they also have huge ongoing debt costs — they still have access to capital, they were able to refinance $2.25 billion in debt just recently, but even in these low interest rate days they have to pay 7.875% on that loan. Assuming their other debt is similarly priced, that’s almost $400 million in debt service costs a year, so it’s closing in on being half of the gross profit they pull in.

So that’s why they had to cut the dividend a year ago, they were posting about a billion dollars a year in revenue but paying $430 million in dividends and close to $400 million in interest payments, which was not supportable if they wanted to do things like pay their employees, perform maintenance, or perhaps even grow.

Now, though, things are looking a little more interesting — this is a highly risky situation compared to the big tower REITs, mostly because so much of their value is tied up in the Windstream relationship and we don’t know what will happen in court, but because they’re so levered they could have a huge surge if the courts smile upon them and say that Windstream has to pay Uniti before it deals with its creditors in bankruptcy… or Uniti could perhaps even join Windstream in bankruptcy if the courts say the spinoff was a “disguised financing” and they’re still really controlled by Windstream. I have no idea how it will turn out, and I don’t think I want to risk my money on the outcome, but it could be a doozy — this could easily be a stock that falls 80% or rises 150% on a single legal outcome (and I don’t know the timing — it could be mediated or negotiated before the next phase of the trial begins in March, or it could be tied up in court for a while). The assets are valuable, though depreciating, and they could be in demand as data transmission continues to increase… but there’s also a lot of debt and legal risk sitting on top of those assets.

If it weren’t for the Windstream legal dispute and bankruptcy risk, I’d see some potential value here even with the heavy debt burden… but with that extra risk that I can’t really predict, I’ll leave this one to Briton Ryle. What do you think? Ready for a wild ride with UNIT? Have other favorite 5G plays? Let us know with a comment below.

Disclosure: I own shares of Crown Castle, mentioned above. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.


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tonofelephant
tonofelephant
7 months ago

UNIT is interesting because it seems that their court date is March 2? and WINMQ & UNIT seem to be well on their way to an agreement before the court date. WINMQ is still UNIT’s largest customer at ~ 50%. The two companies are still pretty much joined at the hip but UNIT is still diversifying away from them. After the court case WIN & UNIT still have to do business together. UNIT’s last dividend was $.22.

Have been trading in and out of UNIT for the last year to get the cost on my core shares down. I was darn lucky (or skillful depending on your mentality), I sold 1/2 of my core holdings 2 days before the price dropped precipitously back in 2019. So the impact was not as large as it could have been.

Resolution will probably be by the end of March. Then the vulture funds, sociopaths, and lawyers will have departed. My timeline for UNIT to be hitting on all 8 cylinders is about another year. The rumor is that UNIT shares will go up right after the settlement (back to business as usual). I expect the price will get up to $16 maybe in 5 months not $68. Fair Value at Morningstar is $11 Sell price is $19.25. Like with all rumors take with a grain of salt and a glass of tequila.

There are a lot of articles on SA, behind the paywall, on UNIT. Lots of polemics, wild theories, and hot air in these articles – always happens when private individuals have their personal money tied up in it. If you read all the articles, behind the paywall, there are some lawyers that actually give links to the actual court case in Judge Drains courtroom where the action will happen if no settlement is reached.

So the popcorn is popped, the barca lounger is ready time to settle in for the drama.

jloewen
jloewen
7 months ago
Reply to  tonofelephant

A Stansberry service, recommending distressed debt — bonds that are selling for 40% to 95% of par because bankruptcy is feared, recommended UNIT bonds a few months ago. Then I think they said “Get out” because bankrupty may occur. Supposedly assets cover bondholders, but it’ll be messy.

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M RM
11 days ago
Reply to  tonofelephant

so if the ticker is UNIT?

Oscar
Oscar
7 months ago

Dear Travis, as always your analyzes are invaluable thank you very very much.

David
David
7 months ago

When it comes to 5g Kathrein seems forgotten. Erickson acquired Kathrein last year late freb. The Feb 19 pps same as today. When it comes to 5g ERiC seems almost forgotten? CHECk the chart you won’t believe me!!!

ajd1103
ajd1103
7 months ago

I purchase UNIT 11/21/2017 at $15.92 and sold 2/1/2018 at $15.66 per the recommendation of Tim Plaehn. He runs Tim’s Corner “Dividend Hunter”. He basically recommends a bundle of REITS to generate income. I got concerned about the strategy and punched out completely with a small overall gain. UNIT is now at $8.75 with a 10.07% yield. It seems like a one step forward and two steps back kind of investment.

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rmorin55
rmorin55
7 months ago

TRAVIS Who will be the company that makes the small antenna box’s. ????

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Wombat
Wombat
7 months ago

I’ve owned AMT for 7 years (+230%) and added in January(+20%)
Solid stock w nice Div.

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Steven C.
Steven C.
7 months ago

I did a little research not only tower or what have you, I looked at what company was already pumping out 5G equipment and stockpiling it. In certain areas, 5G is already begun. This company I found hav been making 5G equipment for a while. It was actually a different company before, but I read it had merged with another company and the name of the company now is Inseego. Do a little research on a few different stock applications and see. They have no debt, as of right now they haven’t been very profitable but the CEO just got a big raise, and the CEO owns a good bit of the stock. It is actually selling at a little over $8. But as I have studied this company and did the background on it, seems like a prime candidate for a bull run that may last a year or more. Just my opinion, check it out for yourself.

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jzekyll
jzekyll
6 months ago
Reply to  Steven C.

Not profitable?

Ben
Ben
3 months ago

Anyone looking at Sierra Wireless?

FRANK8MORRISS
11 days ago

Does anyone know of any of these teasers, that actually did what they say they would?