JBL: The Giant and the Rock Can't Miss

Vodafone may lumber, but it's still a giant. Plus, American Tower stands tall.
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I am a character in a best-selling video game that I can't even begin to figure out how to play. Computers and technology hate me. It's the only way I can explain my apparent technological ineptitude. Certainly, it can't be me.

Recently, I went into a cell phone store for a repair. By the time I left, I had been sold Internet access, photo messaging, text messaging and the ability to get video news and sports highlights. I love all of this stuff that I really don't need and probably will never be able to figure out how to use.

I may not know how to use all of this technology, but I understand investment opportunities; the world is going wireless and it is dragging people like me with it. The two stocks I have on deck today are prime examples of the near future in a wireless world.

I believe land line phone companies are dead, they just don't know it yet. They are the eight-tracks trying to compete with CDs. Voice-over-Internet-protocol (VoIP) and cell phones have leapfrogged the land line providers' technology. Wireless is the next generation that will replace broadband, and it will soon be here.

Andre the Giant

Like the legendary wrestler,

Vodafone

(VOD) - Get Report

is a huge foreign giant. Vodafone has 165 million customers worldwide. It is the cell phone industry's lumbering giant. But lumbering or not, giants are hard to beat.

Vodafone got a lot of negative press for overpaying for acquisitions and 3G technology licenses. 3G, or third generation, is a way of sending data faster. 3G is the equivalent of broadband technology over your cell phone.

Vodafone probably did overpay, but the 3G licenses are now paid for and beginning to produce revenue. Vodafone announced that 4.35 million customers had signed up for 3G. They are on track to hit their target of 10 million 3G customers by March 2006.

Cell phone minutes are not the key future revenue growth for Vodafone. The future revenue growth is from peripherals attached to cell phone contracts. Peripherals such as data, Internet services and video -- where 3G is important -- are your high-margin future growth. 3G will become the prevalent technology, and Vodafone is in a great position with its 3G licenses.

Naysayers point out that customers might not pay a premium for 3G. But if you have ever used broadband once, odds are you never went back. It will be the same with 3G -- when customers realize how much quicker they can receive data they will be glad to pay for the upgrade.

With 165 million customers, Vodafone doesn't have to search for people to whom they can sell new services. They do just what the cell phone store did to me: add a few services here and a few there. Customers don't mind an extra $10 or $20 a month when they feel they are getting a great service out of it.

You bring people into the arena to see the giant, and you charge them for parking, popcorn, beer and hot dogs. It's a system that has always worked.

With more than $14.5 billion in free cash flow, and around $54 billion in cash and investments, this giant has extremely deep pockets. Vodafone is not a double bagger any time soon. However, with a 3% yield and growth opportunities, it is a great long-term holding.

I have owned Vodafone for some time and have recently added shares.

I have always liked giants.

The Rock

When Dwayne "the Rock" Johnson was a wrestler, he was great; since he became a movie star he has reached a new level in the entertainment hierarchy. Like the Rock,

American Tower

(AMT) - Get Report

is a dependable star that is about to become a megastar.

American Tower already has the infrastructure for what will be a wireless world; it has a portfolio of more than 15,000 towers.

Google

(GOOG) - Get Report

has offered to wire the city by the bay, San Francisco, for free. This would ensure that anyone with a wireless computer would be able to access the Internet for free. Whether Google does it or not, Mayor Gavin Newsom has said that San Fran will be wired by the end of 2006.

This will happen all over America in the next few years, despite protests by the cable companies. In Mexico and Latin America where there is no fiber optic cable, there may never be a need for it. They will be wireless countries. American Tower has the infrastructure in Latin America and Mexico as well.

AMT makes money by leasing antenna space on its multitenant towers to cell phone, radio and television companies. AMT will benefit from the future wireless networks that will be built by renting them the tower space.

These wireless networks have to go somewhere and AMT is the best positioned to support them. The margins on the space they will pay to rent the towers will be insane, these margins could be around 90%. It is the equivalent of having a 15-story apartment building that makes money and all of a sudden realizing you have five more floors you can rent.

On Friday, South Korea's

Samsung

said mobile phone sales jumped 10% over the previous quarter and raised its 2005 estimate for total industry growth to 15% over 2004 levels. With increased cell phone usage, more cells are needed, but the cost of operating a tower is fixed. I believe AMT will be a major beneficiary of the growth with the wireless age that we are on the brink of seeing.

AMT is restructuring its debt, which will free up some cash flow.By year-end 2004 it had saved $60 million in interests. It plans to save up to that much more by 2005 or 2006 through long-term debt restructuring. It believes free cash flow will be more than $200 million in fiscal year 2005. This is very important because, as laid out in my

debut column, my basic financial strategy is simple: Keep cash flow positive and stay as far away from debt as possible.

I just recently bought shares in AMT, and I plan on going to see The Rock's new movie. He really should send me a free pass -- movies are expensive.

At the time of publication Layfield was long Vodafone and American Tower although holdings can change at any time.

A former All-America offensive lineman at Abilene Christian University, John Layfield played professional football for the then-Los Angeles Raiders and later in the World League. After wrestling in Japan, Mexico and Europe, Layfield arrived in the WWE in the mid-1990's. A former WWE Champion, JBL was a featured wrester at WrestleMania 21 and can also be seen on Friday Night SmackDown! on UPN.

Outside of the ring, 'JBL' is a self-taught investor who was recruited to write a personal finance book, "Have More Money Now," which was released in the summer of 2003. He has been seen on finance shows on CNN and Fox News Network. He is co-chairman of the Smackdown Your Vote! Campaign and he has joined both the USO and Armed Forces Entertainment (AFE) for tours through Iraq, Afghanistan and other Middle East countries. He regularly visits Walter Reed and Bethesda Naval hospitals to meet with wounded troops.