America was built on railroads.
Before the Civil War, every farm and town more than a few days’ ride from a navigable river had to be self-sufficient. They were too far from industrial centers to import most things.
Frontier farmers concentrated on feeding themselves and their local communities. They couldn’t send bulky crops to distant markets.
But in the two decades after the war, financial titans such as Cornelius Vanderbilt and J.P. Morgan changed all of that. They consolidated dozens of small, localized railroad companies into massive national monopolies — growing from 45,000 miles of track in 1871 to 215,000 miles in 1900.
It made large-scale settlement of the U.S. interior possible … and turned America into a global agricultural powerhouse.
By positioning themselves to get a piece of almost every commercial transaction in the booming U.S. economy of the late 19th century, the railroad barons got filthy, filthy rich. Their fortunes dwarfed those of any previous U.S. capitalists.
Today, a similar opportunity is staring you right in the face … and you can grab your own slice of the coming profits right at your brokerage.
Railroads of the Modern Economy
The “railroads” of the modern economy transmit data instead of physical goods. But just like railroads, owning them positions you to grab a slice of every transaction they facilitate.
The modern digital economy is built on cell towers, data centers and fiber-optic cables.
Without them, companies like Google, Facebook and Apple wouldn’t exist. Neither would the internet.
Surprisingly, all this essential infrastructure is owned by a handful of companies organized as real estate investment trusts (REITs). REITs are a special type of partnership created by Congress to allow ordinary investors to own real estate.
For example, there are about 150,000 large cell towers in the U.S. 80% of them are owned by three REITs. Another six REITs own almost all the major data centers in the country, where massive “server farms” generate digital produce the way pioneer farmers did. Between them, these nine companies control most of the U.S. fiber-optic backbone.
Like railroads, this digital infrastructure is essential to economic activity. But that’s not all they have in common. They both enjoy natural monopoly conditions. And you know what that means: high profit margins.
Railroads required rights-of-way across vast distances. It wasn’t practical for competing companies to build multiple rail lines to get to the same places. So, whoever owned the railway faced no competition. They were “price makers.”
Similarly, it’s very difficult to increase the supply of cell towers in the U.S. because of resistance from local governments. Voters don’t want the monsters all over their towns and countryside. So, any company wanting to broadcast a signal to customers has to buy space on one of the existing towers. Whoever owns the towers is the price maker.
Data centers are in the same position. These facilities consume enormous amount of power to run the servers and keep them cool. The best locations are near big power plants in the northern states with abundant, cheap electricity. They can offer lower prices than competitors elsewhere.
The 5G Opportunity
By now, you’ve seen a ton of headlines about companies that make 5G-related equipment. As the rollout approaches, many of those companies are seeing their stocks soar.
But you probably haven’t heard much about cell tower and data center REITs.
I predict that’s all about to change…
In 2015, the global market for digital “railroads” stood at $23.56 billion. By 2022, that number will jump to $118.52 billion, according to recent estimates. That’s a compound annual growth rate of 26%.
Just last week, cell tower REITs saw 10.5% share price growth. Data centers were up 6.8%.
The time to jump in is now.
Today, You Can Be a Cornelius Vanderbilt
The railroad barons of the 19th century kept most of the profits for themselves.
Today, you can benefit just as they did from ownership of the critical pipelines that make the economy run.
To gain exposure to both cell tower and data center REITs, along with other related companies, I recommend the Pacer Benchmark Data & Infrastructure Real Estate Sector ETF (NYSE: SRVR).
Here’s its performance since the beginning of the year … absolutely trouncing the S&P 500 Index:
So grab your hat, monocle and tailcoat, log on to your brokerage and become one of the “barons” of the modern digital railway!
Editor, The Bauman Letter