Cell tower real estate investment trusts (REITs) have become somewhat of a safe-haven investment in the COVID-19-era thanks to their steady price performance and critical importance to the nation's ongoing 5G rollout. Furthermore, near record-low interest rates make the group an attractive alternative to low-yielding bonds and reduce borrowing costs for companies seeking to expand and/or upgrade their infrastructure.
Oppenheimer analyst Timothy Horan expects U.S. wireless industry capital spending to top $42 billion by 2021, up from $30 billion in recent years. "5G upgrades and 4G network densification will likely be a long cycle that provides solid tower activity visibility for the next few years," Horan told Barron's.
Interestingly, the three cell tower REITs outlined below all moved sharply higher Friday on above-average volume without a major news-driven catalyst. Let's look at each company in further detail and work through several trading ideas.
American Tower Corporation (AMT)
With a market capitalization of $117.74 billion, American Tower Corporation (AMT) – dubbed "America’s 5G Landlord" – owns and operates more than 40,000 cell towers in the United States as well as others throughout Latin America, Europe, and India. Amid falling interest rates, the REIT's shares trade at a 3% spread above the 10-year Treasury, making them reasonably valued, according to Horan. American Tower stock has gained 16.52% year to date (YTD), outperforming the specialty REIT industry average over the same period by nearly 5% as of June 22, 2020.
Throughout June, American Tower stock has consolidated above the prominent February and April swing highs that now provide a crucial support level. While price sits slightly below its all-time high, the on-balance volume (OBV) indicator made a multi-month high on Friday, indicating that the shares may be ready to break out above this significant resistance level. Those who enter here should place an initial stop beneath the June low at $250.02 and consider using a trailing stop, such as a 20-day moving average, to ride the uptrend as far as possible.
Crown Castle International Corp. (CCI)
Crown Castle International Corp. (CCI) owns about 40,000 cell towers across the United States, leasing space on its infrastructure to wireless service providers. Horan notes that the Boston-based company plans on rolling out more small cells (radio transmitters for mobile phone services) that carry additional data to accommodate 5G networks. As of June 22, 2020, Crown Castle stock has a market value of $71.04 billion, offers a 2.9% dividend yield, and is trading more than 20% higher on the year.
The shares have formed a pennant pattern over the past three weeks above a zone of support between $160 and $165. Friday's turnover marked the highest volume since mid-March, suggesting possible institutional interest in the stock. Swing traders who open a long position at these levels should place an initial stop order beneath the 50-day simple moving average (SMA) and lift it under each higher swing low to let profits run.
SBA Communications Corporation (SBAC)
SBA Communications Corporation (SBAC) owns and operates wireless communications infrastructure including towers, distributed antenna systems (DAS), and small cells throughout the Americas and South Africa. Earlier this month, JPMorgan analyst Philip Cusick upgraded SBA Communications stock from "Neutral" to "Overweight," saying that the company's undervalued domestic macro business should help it to grow faster than its rivals. SBA Communications shares have returned 25.83% YTD and 23.51% in the past three months. Investors also receive a 0.62% dividend yield.
Bulls have used the 50-day SMA as a support line throughout June and July, buying dips each time price tests this closely watched indicator. The same pattern played out in Friday's session, with the retest occurring on the heaviest volume since August 2018. Those who anticipate further upside momentum should think about setting a profit target by measuring the distance between the high and low of the recent two-month trading range ($40) and adding that amount to the entry price. Protect capital by cutting losses if price closes beneath the June 18 low at $288.60.