06/08/10 at 12:15 PM
On May 12, the
Centers for Disease Control and Prevention (CDC) released some
interesting new statistics on the growing percentage of American
households that have no landline or "home phone." (The
connection to health is tenuous; suffice it to say that the
information is collected as part of the CDC's National Health
Survey, which is conducted by phone.)
The survey, conducted from July to December 2009, found that one
in four U.S. households -- 24.5% of them -- are now
wireless-only. Another 14.9% have a landline, but receive all or
most calls on their cell phones.
The percentage of households that are wireless-only increased by
4.3 percentage points from the last six months of 2008 to the
last six months of 2009. It increased a similar 4.4 percentage
points in the prior period.
The CDC also collects demographic data during the survey, which
paints an unsurprising picture of these wireless households.
Nearly half of 25 to 29 year olds (48.6%) have no landline,
followed closely by 37.8% of 18 to 24 year olds and 37.2% of 30
to 34 year olds.
However, it's interesting to note that while a larger percentage
of people under 30 have no landline, the majority of
wireless-only adults -- 59.2% -- are actually over 30 years old.
That's up from 48.4% in the first six months of 2006 and
reflects the fact that people who have been using cell phones
for years are not necessarily buying landlines as they get
older. Looking at the data, this can also be seen in the fact
that the percentage of wireless-only adults has been increasing
steadily in every age group.
(Before we move on from the CDC statistics, two more facts that
popped out at me: Wireless-only adults are more likely than
their landline counterparts to report that their health status
was excellent or very good, and also less likely to have health
insurance coverage. Even in the under-65 age group, more than
twice as many wireless-only adults were uninsured: 29.2% to
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Aside from simply being interesting, these trends also have
an effect on various parts of our society. One of the most
obvious is our polling practices. Traditionally, polls were
conducted by dialing randomly generated landline phone numbers.
However, it's been widely acknowledged by polling organizations
for several years that this method introduces a strong bias into
the sample, called a coverage bias (or sometimes a non-coverage
bias). The Pew Research Center found that adults age 50 and
older are significantly overrepresented in landline-only
surveys, comprising 66% of the average landline sample when they
should be only 40%.
This coverage bias affects answers to poll questions on a
variety of topics. The Pew Center found that landline-only
surveys underestimate wireless Internet use by two percentage
points while overestimating gun ownership by four percentage
points, for example. In polling for the upcoming 2010 elections,
Pew found that in a landline-only sample, Republican candidates
received a 47%-to-41% margin over Democratic candidates in the
2010 generic horserace. However, voters in a combined
landline-and-cell phone sample were evenly divided in their
candidate preferences for this November (44% for each party).
Polling organizations are well aware of this bias, and most take
steps to compensate for it. Many weight their samples so their
demographics better reflect reality, and some have begun calling
cell phones. However, as the Pew Center explains, there are many
practical hurdles to conducting surveys by mobile phone. Cell
phone numbers must be manually dialed, a significant minority
are answered by minors and cooperation rates are lower. In
addition, some institutions, including Pew, offer to reimburse
respondents for the cell phone plan minutes used during the
survey, raising the cost of the survey.
In any case, the pollsters will certainly settle on a
satisfactory solution eventually, as wireless-only households
become ever more common. Eventually, I wouldn't be surprised to
see landlines in private homes become a thing of the past.
(Workplaces and institutions are another matter.)
That future is already pretty close to being a reality in some
communities. In the Brooklyn neighborhood where I live, the
median age is 27 (as of the 2000 census), 8.3 years younger than
the countrywide median of 35.3. And while I don't have any local
statistics on landlines vs. cell phones, I'd be willing to bet
the neighborhood has an abnormally low landline penetration
This assumption is largely based on the youthful neighborhood
residents, but it is also based on our unusually large
proportion of renters (87.3% versus the nationwide 33.8%), who
are three times more likely than homeowners to rely on a cell
phone alone (according to the CDC data).
The final reason for my assumption has nothing to do with
statistics, and everything to do with personal experience and
anecdotal evidence. As all good investors know, treating an
anecdote as evidence is a dangerous game ... so humor me.
Last weekend was beautiful in New York City, sunny and warm. To
take advantage of the weather, I headed to nearby Prospect Park
with some friends. At some point, the discussion turned to
technology, and we eventually determined that of the group of 10
or so young New Yorkers present, seven had Apple iPhones (and
one a Blackberry smart phone, for which he received no small
amount of flack).
Though amusing, this was surprising to no one. On multiple
occasions I've stood on a street corner as three or more people
searched for directions to their destinations on their iPhones.
With one of these pocket computers (that also happens to make
phone calls), a landline is the last thing any of my friends
need. Welcome to the future.
So what do you buy to profit from this future? Do you buy Apple
(Nasdaq: AAPL), the maker of the iPhone? Apple is a great
company, with great management, that makes great products. It's
also a great stock that recently hit a new 52-week high of
$272.46 and has held up pretty well through the market's current
correction. But while the stock could climb higher from here, I
am a little worried AAPL is getting overexposed: I read about
the stock a lot. So in the spirit of contrary investing, let's
focus on a company a little less well known today.
I didn't have to think hard to come up with an alternative idea.
Remember those seven iPhones at the park the other day? I
noticed that of those seven, two had cracked screens. With that
on my mind, I just noticed at lunch with people who work near me
that of the three of us with iPhones, one has a cracked screen.
Cracking your iPhone's screen is pretty easy to do. It's glass,
and cracks can develop if you drop your phone, sit on it too
often, or walk into a railing with it in your front pocket (all
of these things have happened to people I know.) Apple will fix
a cracked screen for $200, which seems a bit steep to many
people. So of course a thriving third-party screen replacement
market has developed, with replacement screens and screen
removal kits available on Amazon for as little as $11.
While I don't know of any public iPhone screen replacement
companies (it's probably not a large enough market for a big
player to emerge anyway) there are still plenty of profitable
opportunities in the touch screen market. You can't buy any of
the companies that make iPhone screens (Chimei Innolux, Wintek
and TPK Touch Solutions); they're all private (and Taiwanese).
But you can buy stock in one of the leading LCD and touch screen
makers. This company should benefit as touch screen smart phones
become ever more popular, as well as from demand from people who
drop their phones and need new screens, and from the growing use
of touch screens on all types of electronic devices.
The company is LG Display (NYSE: LPL) and Yiannis Mostrous,
editor of Silk Road Investor, recommended it in Dick
Davis Digest on May 5. Here's what he wrote:
"LG Display Co. is one of the leaders in the TFT-LCD panel
market with 22% global market share, competing with Samsung
Electronics. The company was established in September 1999 as a
50/50 joint venture between LG Electronics and Philips. The
company recently announced first quarter results that were much
stronger than expected because of global economic growth and
demand. The company also raised guidance for the second quarter,
supported by sales volume increases, tight supply and strong
demand. Inventory in China is being run down relatively fast as
demand in the country for flat panels remains exceptionally
"The company has projected that LCD TV demand in 2010 will grow
around +25% while 2011 will see growth of about +20%. Regarding
replacement demand, the industry is already seeing the faster
replacement rate even in regions previously considered very
mature like Japan. The company's projections bode well for South
Korea's economy-it expanded by +1.8% in the first quarter of the
year because of a strong recovery in manufacturing, exports and
spending and that expansion should continue. Exports grew by
3.4%, while manufacturing grew 3.6% after a 1.7% decline in the
previous quarter. According to the Bank of Korea, the economy
will grow this year at its fastest rate in four years. LG
Display trades at a humble valuation of 7 times expected 2010
earnings even after the stock's recent run. Buy LG Display up to
$25."-- Chloe Lutts
Dick Davis Digest
Editor's Note: Chloe Lutts
is the editor of Dick Davis Digest, which brings
subscribers the top investment picks from the best minds on Wall
Street twice each month. For nearly 30 years, Dick Davis Digest
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