Cell tower real estate investment trusts (REITs) have taken a backseat to risk-on sectors in recent months as investors bet on segments of the market that stand to benefit the most from a vaccinated population. However, prospects for the out-of-favor group remain bright amid a shift in remote working and learning trends, which has accelerated the need for additional cell towers to support more comprehensive 5G coverage. According to ResearchAndMarkets, the 5G infrastructure market will reach $44.9 billion in 2025, up from $12 billion in 2020.
- Working and learning from home trends have accelerated the need for additional cell towers to support more comprehensive 5G coverage.
- American Tower Corporation (AMT) shares staged a breakout and subsequent retest of a multi-month downtrend line in recent trading sessions, indicating a move higher from current levels.
- SBA Communications Corporation (SBAC) shares have flipped trendline resistance into support over the past week in a move that could trigger further upside.
Furthermore, a shift to cloud adoption across the industry and edge computing growth potential looks set to drive future expansion of the telecom tower market size. Below, we take a closer look at two leading cell tower REITs and use technical analysis to identify possible trading plays.
American Tower Corporation (AMT)
American Tower owns, leases, and operates multi-tenant communications real estate with a portfolio of more than 180,000 sites. In its latest quarter, the wireless communications giant reported funds from operations (FFO) of $2.23 per share, with the figure topping analysts' forecast of $2.06 per share and growing 11.5% from a year earlier. Last fall, the company inked a 15-year master lease agreement (MLA) with T-Mobile US, Inc. (TMUS), paving the way for more 5G infrastructure growth. Trading at $235.57 with a market capitalization of $104.64 billion and offering a 2.13% dividend yield, the stock has gained just 0.89% over the past three months as of Feb. 2, 2021. By comparison, the S&P 500 has rallied nearly 15% during the same period.
American Tower shares have staged a breakout and subsequent retest of a multi-month downtrend line in recent trading sessions, indicating a move higher from current levels. Those who take a long position here should think about booking profits at $269 – an area on the chart that finds overhead resistance from a previous triple top pattern. Manage risk by placing a stop-loss order somewhere below the 50-day simple moving average (SMA).
The triple top is a type of chart pattern used in technical analysis to predict the reversal in the movement of an asset's price. Consisting of three peaks, a triple top signals that the asset may no longer be rallying and that lower prices may be on the way.
SBA Communications Corporation (SBAC)
With a market value of $30.9 billion, SBA Communications owns and operates over 30,000 cell towers throughout the Americas and South Africa. The company posted third quarter FFO of $2.38 per share, surpassing the Street's expectation of $2.32 per share. Moreover, the metric improved 10.7% from the year-ago quarter. SBA continues to expand its infrastructure to accommodate growing 5G demand, recently acquiring 44 new communication sites and building 75 towers. The stock issues a modest 0.69% dividend yield and is trading 5.2% lower over the past three months as of Feb. 2, 2021.
Like American Tower, SBA stock has flipped trendline resistance into support over the past week in a move that could trigger further upside. The price has also carved an inverse head and shoulders pattern throughout January, adding further bullish conviction. Active traders who enter at these levels should anticipate a retest of a closely watched horizontal line at $322. Stop-loss orders could be placed beneath this week's low at $265.70 or under last month's low at $256.26, depending on risk tolerance.
An inverse head and shoulders, also called a "head and shoulders bottom," is similar to the standard head and shoulders pattern, but inverted: with the head and shoulders top used to predict reversals in downtrends.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.