Innovation is a wonderful thing. Without it, products would
never get better. Services would never improve.
That's exactly what Henry Ford was talking about in one of his
most famous quotes: "If I had asked people what they wanted, they
would have said faster horses."
Apple (Nasdaq: AAPL)
is a great example of this dynamic. Before the iPod came along,
music lovers were still carrying around racks ofCDs that were
cumbersome and susceptible to scratches. The iPod not only gave
Apple a market-changing product -- and sent itsshares rocketing
higher -- it also enriched the listening experience with a more
But now, more than 10 years after Apple changed the landscape of
consumer electronics, that same cycle of innovation is repeating
itself in a different segment of themarket .
Traditional cable companies are going the way of the dodo bird.
Under a barrage of competition from new-media companies such as
Netflix (Nasdaq: NFLX)
and Hulu, consumers are increasingly spurning the traditional
cable model in favor of less expensive alternatives thatoffer
more interactivity and customized content. That's why
lost more than 2 million subscribers from 2009 to the end of
2012, suffering from notoriously poor customer service, high
prices and limited content.
But while many innovative media companieswill benefit from this
ongoing migration from traditional cable, there is one that
stands out. The company is already cashing in on the trend,
lifting its share price to a market-beating 36%gain in just the
pastyear . Take a look:
is a leading provider of satellite television, video and
broadband services in North and Latin America. With amarket cap
of $38 billion, DirecTV is hardly a startup, but there are a
number of reasons this company still has so muchupside .
DirecTV is aggressively pursuing the fast-growing streaming
content market. The company recently released a video-streaming
service called TV Everywhere, which also includes multi-stream
capabilities gaining popularity on mobile devices. Mobile and
streaming are red-hot markets, and DirecTV is moving aggressively
to be a major player.
Latin America is also a big part of DirecTV's growth strategy.
Unlike the highly saturated North American market, Latin American
penetration rates for TV subscription services are much lower.
DirecTV has launched a massive marketing campaign in Latin
America tocapitalize on its growing middle class. It's
alsooffering a range of programming packages to cater to high-
and lower-end consumers alike. In addition, DirecTV is working to
build next-generation wireless broadband offerings and on-demand
video services to the region.
DirecTV is focused on building a world-class infrastructure
tosupport and deliver more content. The company is teaming with
ViaSat and Hughes Network Systems to develop a nationwide
satellite-broadband network capable of Internet speeds of more
than 10 megabits per second. This advanced network is intended to
support DirecTV's growing on-demand video streaming service while
enabling it to deliver broadband services to rural areas. This
creates another barrier to entry for potential competitors, one
principle my colleague Elliott Gue mentions as being absolutely
key in his
Top 10 Stocks
Analysts arebullish on DirecTV, calling forearnings growth of 7%
this year and 21% in 2014. They also forecast annual earnings
growth of 13% over the next five years, outpacing the industry
estimate of 11%.
Risks to Consider:
Although the on-demand video and streaming space is growing
quickly, it is also extremely competitive, with a number of major
players. DirecTV is well-positioned to capitalize on the bullish
trend, but increased competition could threatenmargin
Action to Take -->
Traditional cable companies continue to struggle and losemarket
share as demand for online and streaming content grows. That is
creating a big opportunity for DirecTV, which is already a major
player inmultiple segments of the content market. But even though
there are plenty of reasons to be bullish on DirecTV, shares
still lookundervalued , trading with a forwardP/E
(price-to-earnings) ratio of 13, a sharp discount to the 10-year
average of 16.5. If DirecTV regains its average valuation in the
past 10 years, shares could jump an additional 27%.
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