The largest U.S. provider of direct-to-home digital TV service appears on an MSN Money list of recommended stocks.
Facing a stagnant market (nearly 90% of U.S. households already subscribe to a pay TV service), DirecTV (DTV) is going where the growth is.
In recent years that's meant an aggressive push into Latin America, where cable and satellite TV penetration lags that of the United States. Now, DirecTV is reportedly a leading contender to acquire Hulu, in a deal that would give it greater access to the growing number of viewers who watch video over the Internet.
Some technology blogs are reporting that DirecTV is close to consummating a $1 billion deal for Hulu, which offers viewers free, ad-supported content from Fox, NBC and ABC, as well as a $7.99-a-month subscription option for expanded access to TV shows..
Hulu, which was launched by the networks in 2007, has been unable to keep pace with faster-growing rivals such as YouTube, owned by Google (GOOG) and Netfix (NFLX). Still, a deal for Hulu could give DirecTV a brand-name entree into Internet-based broadcasting that would help it compete for customers.
DirecTV provides digital TV service and on-demand video to roughly 20 million subscribers in the United States and nearly 11 million in Latin America. It competes with cable providers such as Comcast (CMCSA) and Time Warner Cable (TWC) as well as phone companies like AT&T (T) and Verizon Communications (VZ), which bundle their own video services into voice, telephone and Internet packages.
The El Segundo, Calif., company appears on a daily ranking created with StockScouter, an MSN Money tool that identifies stocks with strong growth prospects in the near term. All stocks with Scouter ratings of 8, 9 or 10 are considered for the list, which is then shortened to exclude stocks with a trading volume below 50,000 shares a day. The remaining stocks are ranked on the basis of market capitalization, sector membership and whether they are growth or value stocks.
Dish Network (DISH), the No. 2 direct-to-home digital TV service, after DirecTV, has been considering an even bolder move to tap the growing demand for wireless broadband service as the pay TV market stagnates; Dish made an unsolicited bid for Sprint Nextel (S) after the wireless company had agreed to be acquired by Japanese telecommunications giant SoftBank (SFTBY). Control of Sprint -- the No. 3 wireless provider in the United States -- would catapult Dish into the mobile-phone industry, which is increasingly central to how Americans communicate, work and consume media and entertainment.
DirecTV's U.S. subscriber growth has slowed as the company has placed priority on holding on to subscribers that generate the most revenue and profit, and worrying less when cost-sensitive customers shop for less-expensive TV options.
The company said it had 21,000 net subscriber additions in the United States in the first quarter, down from 81,000 in the year-earlier period. The total U.S. subscriber base rose 0.7% in the quarter to 20.1 million.
It added 583,000 net subscribers in Latin America, down from 593,000 a year earlier. DirecTV said it ended the first quarter with 10.9 million subscribers in the region, up 29% year on year.
Eleven of the 20 analysts covering the company rate the stock a "strong buy," two have "moderate buy" ratings, six have "hold" recommendations and one has a "strong sell" rating.
DirecTV has a StockScouter rating of 9, meaning the stock is expected to significantly outperform the market over the next six months with less than average risk.
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Here at MSN Money, we think our StockScouter rating system is about as good as it gets when you're trying to decide where to invest. StockScouter looks for stocks whose business fundamentals, price behavior, valuation and stock-ownership characteristics appear to predict a rising price in the future, based on how those factors have influenced stock prices in the past.
The system assigns each stock an expected six-month return and balances that return against the stock's expected volatility. Scouter rates stocks on a scale of 1 to 10, and ratings can change daily. Ratings and data in the chart above were current as of this article's publication date.
In addition to the daily top 10 list described above, StockScouter is used by investment research firm Verus Analytics (previously known as the quantitative business unit of Gradient Analytics) to generate a monthly benchmark portfolio of stocks that, refreshed monthly, has outperformed the market since its inception in August 2001.
An investor who began in 2001 by investing in each of the benchmark portfolio's top 10 stocks at the start of the month, selling them at the end of the month and then starting fresh with a new group of 10 stocks, would have generated returns, before trading costs and taxes, of 890% through May 31, 2013.
Writer Jon Markman, at the time a columnist for MSN Money, collaborated with company researchers on the tool. Markman suggested rolling over the top 10 stocks every six months to hold down trading costs, a strategy that might be a better fit for most investors; that would yield different results, which would vary based on your starting point.
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