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Glenn Rogers is a longtime contributor for ( His background is in Media and Publishing and has held a number of senior positions in major magazine and newspaper organizations. He has also successfully partnered with private equity firms to... More
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  • Crown Castle Is A Stable Bet In An Uncertain Tape.

    Many investors hold shares in one of the major providers like Verizon or ATT down here or Bell and Rogers in Canada. However, most of the big carriers have experienced slowing revenue and increasing costs as consumers consume more and more data. Because of fairly robust competition the ability of carriers to raise prices has been limited. Recently Barron's wrote an article recommending the three cell phone tower stocks that provide the backbone for the wireless Telco carriers here in the US and in one case some international exposure as well. Its an alternative way to play our ongoing fascination with mobile gadgets and our increasing proclivity to consume more and more data to stream video content and music.

    The three main players are American Tower (NYSE:AMT), Crown Castle (NYSE:CCI) and SBA Communications (SBC). All are interesting for different reasons. American Tower gives you international exposure with towers in Latin America, India and South Africa. Crown Castle pays a 4% dividend and its focus is on major US markets so if you want to avoid emerging markets and their currency risks CCI and SBA are for you. SBA is the smallest of the group but has been the fastest grower. In terms of size AMT is the giant with nearly 100,000 towers, CCI is second with 40,000 and SBA has 25,000 sites.

    As I said up top the three are all interesting but I decided to focus on CCI because of its healthy dividend payout. Both AMT and CCI converted to REITs in 2014 so must payout 80% of their profits to their shareholders. SBC will likely convert as well once they run through their current tax losses.

    All these companies do the same thing and are basically utility companies with less regulation but a smaller customer base. There are four main customers Sprint, T-Mobile, Verizon and ATT. The federal government will likely be launching an emergency network called First Net that will also require tower space. That's the bad news but the good news is that these customers really are captive and have increasing data needs for the foreseeable future. Mobile search has surpassed desktop search and continues to expand at a rapid rate and customers expect faster and faster connection speeds, which is good for CCI but not so good for the Telcos. Of course the major growth is in the urban areas primarily and CCI's footprint is in 70% in the urban areas.

    CCI recently sold its stake in its Australian subsidiary to raise capital to support its US activities so if you like a stock focused on US only activities this is one for certain. The company also completed the acquisition of Sunesys, which is a major fiber provider with over 10,000 miles of fiber which helps support the company's small cell network which is deployed in major urban venues like sports stadiums and universities etc.

    Its last financial report was so-so in the second quarter with both revenues and earnings coming in below consensus estimates. However, the company recently raised guidance for the full year expecting net income of $1.5 million up from previous estimates of $498 million so the dividend should be safe and could get raised.

    The main risks for the company are high debt load and the aforementioned customer concentration. Their debt was recently upgraded by S&P to BB+ that should keep borrowing costs down. This is not a high growth business but its steady, generates lots of cash flow and pays you to wait.

    Just in the company released 3rd quarter results and gave these highlights:

    - Exceeded high end of previously provided third quarter 2015 Outlook for site rental revenues, Adjusted EBITDA and AFFO

    -- Increased midpoint of full year 2015 Outlook for site rental revenues, Adjusted EBITDA and AFFO by $60 million, $37 million and $23 million, respectively, to reflect strong third quarter 2015 results and Sunesys acquisition

    -- Provided midpoint 2016 Outlook for AFFO per share of $4.66, representing year-over-year growth of 8%

    -- Announced increase to annual common stock dividend from $3.28 to $3.54 per share, or $0.885 per quarter, representing an increase of 8%; increase to take effect with dividend payment on December 31, 2015

    Action now buy with a target of $90.00

    Tags: CCI, wireless
    Nov 10 3:37 PM | Link | Comment!
  • Risky But Alibaba Is A Buy

    By Glenn Rogers, Contributing Editor

    I should begin this column by acknowledging up front that this will be a controversial recommendation and not appropriate for our more conservative readers. The company in question, Alibaba Group (NDQ: BABA), has been under a great deal of scrutiny in recent days in part because of a negative article published by Barron's last week.

    The stock has fallen from a high of $120 a year ago to $59.24 as of Friday's close (figures in U.S. dollars). That means it is now below its IPO (initial public offering) price of $68. This IPO was the largest in history, raising $22 billion when the company went public last year. This may well be the epitome of a high-risk, high-reward stock opportunity.

    For those who are not familiar with Alibaba, it is the Chinese equivalent of Amazon and eBay. There are several ancillary businesses attached to this massive e-commerce company, which operates under the Alibaba Group Holdings banner. They include Taobao, Tmall, eTao, and Juhuasuan.

    Jack Ma, whose personal story is well documented in financial publications but bears repeating, founded Alibaba. Ma was a poor boy hanging around hotels in Hangzhou, giving free sightseeing excursions to tourists so he could learn English. He could see the commercial potential of the Internet despite having no programming ability or technical knowledge. He gathered a group of friends and developed a plan to become the premier player in the Chinese e-commerce industry. A more improbable tale you could not imagine and it will probably one day become a movie script. Ma remains the company's chief booster and is a compelling but self-depreciating CEO who has amassed a huge personal fortune from extremely modest beginnings.

    The original Alibaba site at is a juggernaut and is China's largest wholesale marketplace. It also operates in a number of other countries around the world, including the U.S.

    Until recently the company operated more like eBay in the sense that it did not hold inventory and really just facilitated buyers and sellers. That is now changing since Alibaba bought a large logistics company and has begun warehousing some items. This will put them more in step with the Amazon model. Also like Amazon, the company offers cloud services in China and has begun investing in online entertainment, much like Amazon has in the U.S.

    Revenues have been growing at an annual average of 57.6% over the last three years. For the 2015 fiscal year, which ended in March, revenue was up 43.4% to $12.3 billion. Operating income was $4.1 billion. The company has $20 billion in cash and 8.5 billion in debt.

    The company's mobile business is growing dramatically as well, with 673 million mobile users. Keep in mind that China is in the very early stages of Internet commerce and penetration amongst the entire population currently is at 47.9%. That compares to the U.S., which is at 74.4% of households. Of course there are a lot more households of China, which has a population of 1.3 billion compared to 321 million in the U.S.

    China is a very different retail market than we are used to. The availability of bricks and mortar stores is much more limited than in more developed countries. So to get the selection and quality of goods they want, Chinese consumers have little choice but to go online, to a large degree bypassing the mall economy that we built in North America.

    So why does Barron's dislike Alibaba? First, they are concerned about growth beginning to slow and the macro problems in China. Those may or may not be as dire as we fear but certainly something isn't going quite right in China in terms of economic growth. Second, the journal points to increasing competition from, which bills itself as China's largest online direct sales company, and others. Barron's is also concerned about the confusing corporate structure and possible conflicts of interest that might result from that. For the record, Alibaba disputed the analysis in a public letter, saying the Barron's article "contains factual inaccuracies and selective use of information."

    One of the main reasons for the complicated corporate structure is the Chinese restriction on foreign ownership of certain types of assets. The Alibaba structure is not unique but it is certainly more convoluted than we would feel comfortable with in North America.

    None of these concerns are trivial and as a result the shares of the company have been getting hit very hard, as I mentioned at the outset. But at the end of the day, we are looking at the second largest global economy with a massive and growing population of new consumers who are rapidly adopting Internet commerce and mobile applications. Additionally you have a dynamic CEO who is driving towards two billion users globally, with the financial firepower and passion to make it happen.

    The company is covered by a number of analysts, most of whom still have a buy rating albeit with reduced targets in the high $90s. This is certainly not a stock for your kid's college fund or for widows and orphans but at some point it will find a bottom and when it does there will be an opportunity for a dramatic rebound.

    As I said at the beginning, this is an aggressive, contrarian recommendation of a type that we don't often feature in this newsletter. But I like the company's prospects. China isn't going away and neither is e-commerce. BABA is the best overall choice to benefit from this dramatic trend. I would suggest that aggressive investors average in over the next month. Alternatively, you can monitor the stock closely and take a position when a base begins to form.

    Action now: Buy with a target of $80. The stock closed on Friday at $59.24.

    Oct 01 11:23 AM | Link | Comment!
  • There Are Ways To Profit From Cyber Security

    Unless you have been living in a cave these past couple of years you will doubtless be aware that the subject of cyber security has become a hot topic both domestically and internationally. The recent attack by North Korea on Sony was just the latest and most headline-grabbing example.

    The Sony attack was exacerbated by the fact that this may be the first time that a national government has singled out and attacked an individual corporation. This raises the bar in terms of what we could be facing down the road. Prior to the Sony incursion, both Target and Home Depot were hacked causing considerable damage to the reputation of both corporations and it's hard to imagine more will not follow. However, as far as we know, a foreign government did not orchestrate those attacks.

    Doubtless there have been numerous country-to-country attacks, some of them widely reported. U.S. officials have pointed to China in particular, claiming it mounted repeated attacks against U.S. facilities. But the United States has been active as well. It was widely reported that the U.S. managed to attack and damage Iran's nuclear facilities by placing viruses in their centrifuge servers, causing the entire facility to grind to a halt.

    Last week President Obama and British Prime Minister David Cameron agreed to a series of cyber war games to test our readiness to repel enhanced attacks from other countries. The Joint Chiefs of Staff has identified cyber security as one of America's major vulnerabilities as a nation and I'm sure that Canadian officials are deeply concerned as well.

    In the light of all this, there's no doubt that in corporate boardrooms worldwide and throughout defense sectors around the globe experts are doing complete reviews of the vulnerabilities and capabilities against this very real threat. You can easily imagine that the phones are ringing off the hook at the consulting firms and software companies that provide security services to both corporations and governments. For this reason we decided this month to look at the ways you can play what is likely to be a multi-year rush to secure our computer and Internet systems worldwide.

    Back in the early years of the Internet, companies like McAfee (since acquired by Intel) would sell inexpensive software to protect our laptops and home computers. Windows computers were considered the most vulnerable and Macintosh users seldom bothered with security software at all. As Wi-Fi use proliferated, identity theft and password hacking to get financial information seemed to be everywhere. As a result, a number of companies have produced enterprise-level security systems that have come to be relied upon by corporations and governments everywhere.

    Recently, the ever-vigilant ETF community launched a product to give investors exposure to this area. It's called the PureFunds ISE Cyber Security ETF and the symbol is, appropriately enough, HACK. This fund is run by a small provider called PureFunds ( The company only has two funds, the second one being an ETF that invests in junior silver miners.

    HACK has only been trading for a couple of months so there is no real track record to work with and of course the market has been extremely volatile so it's difficult to assess how this fund will do. However, it is up roughly 6% since it was launched. It is helpful, though, to run through their top 10 holdings as of the middle of January. Most of the names are the ones you should research to increase exposure to this important sector. I intend to look at two of them but investors can simply buy the ETF or cherry pick one or two of the issues on their list and add them to your portfolio.

    Palo Alto Networks

    First, I want to look at Palo Alto Networks Inc. (NYSE: PANW), which is trading near its all-time high of $129.42 (figures in U.S. dollars). This is a very stable stock and the chart looks beautiful. Nearly every analyst that covers it has a buy rating on the stock.

    Palo Alto provides sophisticated firewall systems through their security platform and they are the fastest-growing cyber security company that I'm aware of. They have over 21,000 customers in 120 countries around the world and 75 of the Fortune top 100 companies use Palo Alto as their cyber security provider.

    Revenue is growing quickly. For example, for the first quarter of fiscal 2015 (to Oct. 31), the company grew revenue by 50% to a record $192.3 million and they should be able to continue that high growth rate for some time to come. In fact, the company has projected second-quarter 2015 revenue will come in between $200 million and $204 million, which would be a year-over-year growth rate of 42%-45%.

    However, and here is where I want to inject a note of caution, Palo Alto is not profitable. It reported a first-quarter loss of $30.1 million ($0.38 a share, fully diluted, based on GAAP standards). That was worse than the previous year's loss of $7.9 million ($0.11 per share). The company says it is profitable on a non-GAAP basis, which defines non-GAAP net income as net income (loss) plus share-based compensation expense and related payroll taxes, acquisition related costs, amortization expense of acquired intangible assets, litigation related charges including legal settlements, and non-cash interest expense related to the company's convertible senior notes.

    "Palo Alto Networks believes that excluding these items from non-GAAP net income and non-GAAP diluted net income per share provides management and investors with greater visibility into the underlying performance of the company's core business operating results, meaning its operating performance excluding these items and, from time to time, other discrete charges that are infrequent in nature, over multiple periods," a note to the financial statements said.

    On a non-GAAP basis, Palo Alto management projects a profit of between $0.16 and $0.17 a share in the current quarter.

    The company has over 1,900 employees around the world and they have added over 1,000 customers every quarter for the last 12 consecutive quarters. The company has also been making acquisitions, recently acquiring Cyvera, a privately held cyber security company located in Israel.

    I believe this should be a core holding for any forward-looking portfolio, however the stock is not cheap. According to Capital IQ, the forward p/e ratio for fiscal 2016 is a bloated 85.62. Cautious investors may want to watch for a price pullback although based on recent performance and the growing demand for these services, that seems unlikely.

    Action now: Buy with a target of $150. The shares closed Friday at $126.81.

    FireEye Inc.

    The second company I want to draw your attention to is FireEye Inc. (NDQ: FEYE) which is far more volatile than Palo Alto. It went public last year and since then the stock has been pummeled and is currently trading 66% below its high of $97.35.

    So why look at it? It's been trading sideways for some time and continues to have issues with lawsuits brought by disgruntled investors who watched their market position get destroyed. But I have a feeling that once things settle down the stock could easily double based on the company's strong revenue growth. But be warned, this is not a stock for the faint of heart.

    FireEye provides real-time threat assessment for its customers based on a virtual machine platform that they invented. The system is well-regarded and from their website we are told that they protect five out of the six major telecom companies, five of the top ten financial institutions, seven of the top energy companies, seven of the top ten high-tech companies, and five of the top ten aerospace defense contractors. It was FireEye that Sony called to help them figure out who it was that attacked them and how they could shore up their defenses.

    If you go to the FireEye website at you will see an alarming cyber threat map that as I write this column is reporting over 24,000 attacks on this day alone.

    Financially, the company is growing quickly on the top line but still losing money. Third-quarter revenue (to Sept. 30) came in at $114.2 million, up 168% year-over-year. However, the GAAP net loss was $120 million ($0.83 per share) while the non-GAAP loss was $73.9 million ($0.51 per share).

    For the fourth quarter of 2014 (results to be released next month) the company projected billings in the range of $195 million to $210 million with losses of between $0.46 and $0.50 a share.

    Cautious investors may want to wait and see the fourth-quarter results before establishing a position. More aggressive investors may want to take a small stake now and add more later, depending on how the quarterly report goes.

    Action now: Buy with a target of $40. The shares closed Friday at $34.93.

    Interestingly, one of the things that Sony did while they were going through the attack was to shut down all their iPhones and reactivate some old BlackBerries that they found in the basement. So an outside beneficiary of all the cyber security concerns, ironically, might be BlackBerry, which has been trying to remake itself into a security software provider. Their handhelds still provide the best email security in the market.

    Feb 17 12:26 PM | Link | Comment!
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