Towers of power

11/04/20
  • SBAC recently pulled back near support after 50% rally
  • Stock has outperformed better-known competitors in recent years
  • Post-earnings volatility pattern may interest options traders

As we’ve inched (crawled, creeped; see “plodded”) our way toward the inevitable 5G wireless future, much of the discussion in trading circles has revolved around semiconductors and 5G-compatible devices—e.g., the things made by the Qualcomms (QCOM) and Apples (AAPL) of the world.

But there are less-sexy stocks that are integral to this game, foremost among them companies that own or manage cell towers—those ugly, but indispensable pieces of the 5G infrastructure puzzle. Often overlooked, they’ve been cited by some analysts as the most direct way to play the 5G revolution (sorry, evolution).1

The two cell tower operators that typically get the most press are American Tower (AMT) and Crown Castle (CCI)—with good reason, since between them they control more than 80,000 installations, which is around 76% of the total number operated by the 10 largest US cell tower companies.2

Occasionally absent from this conversation is SBA Communications (SBAC), the third-largest US cell tower operator, with 16,400 installations—less than half as many as either AMT or CCI. But as the following chart shows, SBAC has outperformed its larger competitors in terms of stock performance for quite a while:

Chart 1: SBA Communications (SBAC), American Tower (AMT), Crown Castle (CCI), 12/31/18–11/3/20. 5G infrastructure stocks price chart. SBAC outperformance.

Source: Power E*TRADE


The chart also shows that all three stocks lost some bullish momentum after their initial rallies off the March lows (but again, SBAC stood out by edging higher into mid-September while AMT and CCI both began drifting lower in July), and more recently pulled back with the rest of the market.

All three stocks have also released quarterly numbers fairly recently—AMT and CCI in October and SBAC after the bell on Monday—and all three missed their earnings estimates, although SBAC also upped its full-year revenue outlook.3  At last Friday’s close, SBAC was down around 10% from its September high. Yesterday, which was the first day of trading to reflect earnings, the stock sold off early, but managed to hold above Friday’s low:

Chart 2: SBA Communications (SBAC), 3/17/19–11/3/20. SBA Communications (SBAC) price chart. Rally, range, pullback.

Source: Power E*TRADE


Bullish 5G traders who adhere to the principle of buying pullbacks in stocks with the most relative strength within an industry have likely been watching longtime outperformer SBAC. Right now they may be specifically gauging whether Friday was a swing point for the stock, or if a test of the support zone containing the May and June lows is in the near-term cards.

A final note: SBAC’s options implied volatility (IV) was still well above average yesterday—as you’d expect in the immediate aftermath of an earnings release. If it remains elevated, bulls may look to sell potentially high-priced put options (either with the expectation of getting assigned stock, or just to collect premium), but they may pivot to buying calls if IV drops, as it often does as earnings fade in the rear-view mirror.

Market Mover Update: Yesterday’s 1.8% rally by the S&P 500 (SPX) was its second-biggest election-day gain of the past 36 years, trailing only 2008’s 4.1% surge. December WTI crude oil futures (CLZ0) followed up on Monday’s 3.5% jump with a 3.3% intraday burst to $38.32—a 14% pivot off Monday’s five-month low of $33.64.  

Today’s numbers (all times ET): Mortgage Applications (7 a.m.), ADP Employment Report (8:15 a.m.), International Trade in Goods and Services (8:30 a.m.), PMI Composite Final (9:45 a.m.), ISM Services Index (10 a.m.), EIA Petroleum Status Report (10:30 a.m.), FOMC meeting starts.

Today’s earnings include: Verisk (VRSK), Apache (APA), Cars.com (CARS), Wendy’s (WEN), Scientific Games (SGMS), Denali Therapeutics (DNLI), GoDaddy (GDDY), Match (MTCH), Qualcomm (QCOM), Qorvo (QRVO), Paycom (PAYC), Upwork (UPWK).

 

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1 MarketWatch.com. Opinion: The best 5G pure-play investment is in cellphone-tower operators. 10/29/30.

2 Wirelessestimator.com. 1952–2020. Top 100 Tower Companies in the U.S. 11/3/20.

3 StreetInsider.com. SBA Communications (SBAC) Misses Q3 EPS by 26c, Revenues Miss; Raises FY20 Revenue Outlook. 11/2/20.

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