Buy This Stock up to $4.75

May 15, 2012
By G.S. Early, Money Morning

Steve Jobs was legendary for his attention to the smallest details. That included the packaging.

When the Macintosh was introduced, Jobs insisted the only way to remove it from the package was by its handle since it was the first “portable” computer.

Of course, the original Mac was far too heavy and bulky to actually carry around. But to Jobs, the handle was essential. It made the $2,500 device (in 1984!) more accessible and less imposing of a technological wonder.

It also tapped into that human concept of mobility.

Now you didn’t have to go somewhere to use a computer; it came to you. Technology was not the master, but the companion.

It seems simple, but it helped open up a whole new world.

And now we see where Mobility 2.0 is taking us. Smartphones, tablets, and ultrabooks are changing the way we interact-not only with the Web, but with one another.

But it’s not just the devices that are changing.

It’s the infrastructure that allows them to receive signals, upload information and communicate across different platforms, etc.

Let’s face it, the iPhone wouldn’t be nearly as cool if it couldn’t communicate or snap photos for your Facebook page. Or if you lost your connection every time you turned a corner on an augmented reality history tour of Chicago.

Behind the scenes is a complex infrastructure that makes it all work.

One company at the heart of Mobility 2.0 is an Innovation Investing newcomer, Towerstream Corp. (Nasdaq: TWER).

Towerstream: A Mobile Technology Innovator

One of the key challenges for today’s mobile communications is consistent, abundant connectivity.

Whether you’re in the suburbs, cities or countryside, service can be spotty. In the latter case, it’s generally a matter of telecom companies sinking enough money into getting service everywhere it needs to be.

In the suburbs it’s a different story. Many neighborhoods are going NIMBY (not in my back yard) over cellphone towers and repeaters. They are concerned about property values, aesthetics and potential radiation hazards.

A developing solution is a technology called Distributed Antenna Systems (DAS), which are small antennas added to existing structures. The upside is that they’re less intrusive. The downside is they’re more expensive to install.

This is an interesting space for investors to watch, since most DAS companies are not publicly traded and a couple of big contracts could start a stampede in the sector.

In the cities, buildings make it difficult for signals to remain consistent since big towers don’t evenly distribute signals across an uneven cityscape. Towerstream is working to change this in 14 cities across the United States.

Towerstream has been wirelessly connecting office buildings in major cities for years and is now connecting cities. Using high capacity wireless rings attached to the tops of buildings, its gear distributes bandwidth (via WiMax and WiFi) to access points (APs) on top of other buildings -much like relay stations.

The web of APs then distributes the connectivity evenly across the city — and at respectable speeds, to boot.

In December 2010 when TWER first went live in Union Square in Manhattan, Craig Plunkett of MuniWireless reported:

“A quick speed test showed 5.45 Mbps down and 6.2 Mbps up, a perfectly good performance level, most probably restricted by the size of Towerstream’s pipe between its AP location and its distribution site . . .Towerstream seems well positioned to be able to help cellular carriers and other ISPs alleviate some issues in their most painful locations by offloading the data traffic from their smartphones. It remains to be seen whether Towerstream can convince the mobile operators in their markets to embrace their wholesale strategy and more fully integrate Wi-Fi data distribution into their architectures.”

So while the performance was there, TWER had been something of a mixed bag.

However, just recently, Plunkett’s last concern regarding convincing mobile operators has been overcome. In late March of this year, TWER filed an 8-k with the SEC stating simply:

“Item 8.01Other Events

Towerstream has signed a Wi-Fi agreement with a national wireless carrier utilizing our current and future rooftop assets.”

This could be the break TWER investors have been waiting for. But since then, there has been no information on the news.

What You Need to Know About Towerstream

There are two important factors to bear in mind with this stock.

First, the company has been using the stock to purchase smaller carriers and consolidate its network. That means some of these new shareholders will be dumping shares when the stock moves higher, exerting downward pressure on the stock short term.

The second issue is that since the stock has an unusual business model, no one knows how to really value it.

That means analysts tend to stay away and the institutional money stays aloof. Once there is more visibility on its “agreement with a national wireless carrier” it will be easier to value and make it less risky for institutions to buy.

But these factors can be used to individual investors’ advantage.

Essentially the stock is under pressure because it’s building a network that a major carrier is interested in using. And analysts are staying away until they get more on the deal.

That means you can buy this stock while it’s low and when the news hits you can score a nice short-term pop or hang on for potentially big long-term gains.

Simply put, it’s a small stock waiting on its big break.

But TWER’s current business is solid and growing, so if you have a high risk tolerance, this one may be worth some attention.

In fact, last Thursday the company announced Q1 FY12 earnings. It was a mixed bag; revenue was up 31% year-over-year but the company lost 8 cents a share, which was double last year’s loss.

But there are reasons behind the losses–especially with a company growing with its acquisitions, integrating those new properties and equipment. Even still, Wall Street doesn’t like surprises to the downside these days, regardless of the reason.

The stock has sold off but it’s a better deal now, as we wait for the deal with a major carrier. TWER is “Buy” up to $4.75.

– G.S. Early

Source: Money Morning

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