Invest in Cell Phone Infrastructure for Growth in 2010

With the market volatility and poor economic data ruling the market in the last few months, it’s no surprise that many investors see this part of 2010 as a time to flee the scariness of stocks for more stable assets. But they’re dead wrong…

Many industries starting to become oversold once again, and opportunities abound for value investors in 2010. One of those industries is wireless communications. Here’s a look at a couple penny stocks to watch in that space…

Cellular stocks have been getting a lot of good attention of late, and it’s no surprise why. The hype over the next new cell phone models — like the iPhone 4 or HTC Evo — has had consumers shelling out big bucks in both acquisition costs and high-margin data contracts. At the same time, consumers are eschewing fixed-line alternatives for their cell phones, opting to keep connected to a single number whether they’re at home or in the car.

In turn, that increasing reliance on cell phones has made them significantly more common in the U.S. over the course of the last decade — where only around one in three Americans owned cellular phones in the year 2000, the number of cellular subscribers is quickly approaching the U.S. population today.

And the end isn’t yet in sight… According to industry think tank IE Market Research, wireless subscribers are expected to grow another 27.5% in the next four years.

For carriers, that accelerating subscriber growth has fundamentally changed their businesses. Where the income statements of telecom giants like AT&T and Verizon were once dominated by fixed-line services, wireless customers now make up the bulk of each company’s revenues. But as the cellular market becomes increasingly saturated and wireless services become further commoditized, it’s likely we’ll see the margins of most carriers get squeezed.

More attractive is the cellular infrastructure market — the companies that exist to build out and support the massive cellular networks that span the country. Increasing numbers of subscribers (particularly high-end, data-hungry subscribers) mean that older networks aren’t keeping up with the speed and throughput requirements of U.S. customers. To stay competitive, the carriers are forced to sell out massive amounts of cash.

How much? In 2011 infrastructure spending is expected to hit $40.3 billion, a 6.7% rise over last year.

And unlike the cellular carrier business, which is dominated by mega-cap blue chips like AT&T, many of the companies that service cell carriers are small, growth-oriented firms.

A couple familiar names to penny stock investors include Neustar (NYSE: NSR), a wireless communications clearinghouse, and FibreTower (NASDAQ: FTWR), which provides facilities-based backhaul services to wireless carriers.

This article originally appeared on PennySleuth.com.