As a wave of volatility washes over the 10-year bull market, many investors are still looking for defensive stocks and value-oriented strategies even amid the market's early January rally. Three of Wall Street’s most successful stock pickers now recommend that investors buy into the overlooked cellular tower sector, which they note is typically shielded from broader market headwinds.  

In order to reap the rewards from a proliferation of wireless data, these market watchers, per a detailed story in Business Insider, argue that investors would be wise to think outside of the box. Instead of picking high-profile wireless communication providers like AT&T Inc. (T) and Verizon Communications Inc. (VZ), these investors favor American Tower REIT (AMT), Crown Castle International Corp. (CCI) and SBA Communications Corp. (SBAC).

3 Top Stock Pickers' Favorites

  • American Tower REIT
  • Crown Castle International Corp.
  • SBA Communications Corp.

Stable Growth Industry

"It can be tricky to find companies with business models that will directly benefit from big shifts. Wireless data is a great example of that. Growth has been exponential for a number of years, and it continues to be a huge theme, both as consumers and investors continue to proliferate,” Kyle Weaver, lead manager of the Fidelity Advisor Growth Opportunities Fund, told BI.

Chris Smith, founding portfolio manager of the Artisan Thematic Fund, and Joe Hudepohl, principal portfolio manager of the Eaton Vance-Atlanta Capital Focused Growth Fund, agree.

The money managers note that as wireless telecom providers move toward next-generation 5G technology, they will need to pay more in rent to tower companies in order to hang their equipment. "We like the tower companies, because they're very high recurring long-term revenue stream companies, and they own all the wireless towers in the US,” said Smith, who expects the providers to experience accelerated growth in 2019 and 2020.

Tower companies also stand to benefit from their status as essential local monopolies, meaning that all upgraded 5G technology will have to filter through them. "Each tower is like its own tiny local monopoly. For that area of your neighborhood, there probably isn't another spot to put that equipment, which gives the tower companies a pretty unique advantage. And nobody wants new towers built in their area,” Weaver explained, per BI.

American Tower

Shares of American Tower have gained 17.8% over 12 months, outperforming the S&P 500’s 5.9% loss. Meanwhile, over the recent 30-day period, the stock has fallen 4.7%, compared to the S&P 500’s 2.5% decline, presenting an opportunity for investors to buy shares of Boston-based REIT on the dip. 

"American Tower is a cell tower business whose opportunity was created by the market environment. It's probably one of the most consistent businesses out there, because of the long-term growth in the demand for cell service. The only way to do that is to continue hanging more equipment on the existing cell infrastructure. American Tower is a huge beneficiary of that,” stated Hudepohl. The REIT, at 4.39% weighting -- is the 11th-largest holding in Hudepohl's 25-stock fund portfolio.

Weaver echoed the bullish sentiment on AMT, highlighting the company’s investments overseas. "AMT has differentiated itself from other tower companies in the US by investing abroad in emerging markets like India and Nigeria, where wireless data growth is on an even steeper growth trajectory,” he stated. AMT stock has skyrocketed from $30 to $160 over that period, and the Fidelity manager expects the trend to continue as the stock travels up with earnings growth.

Looking Ahead

Positive industry tailwinds aside, it’s important to note that these tower companies represent defensive stocks, and may not provide the boost that investors seeking major returns would hope come during a long market advance. Instead, these stocks should be part of a portfolio intended to smooth out risk.