In case you haven’t noticed, DirecTV (NYSE: DTV) is doing a great job, posting 11 consecutive quarters of double-digit revenue growth.
It has been adding subscribers at a record rate – mainly because of Latin America, which offers a market of 140 million households eligible for pay TV. Rival Dish Network is not focused on this emerging market, so it’s essentially DirecTV’s for the taking.
And the company is taking it: In the first quarter of this year, it added more than 600,000 net subscribers in one quarter, double year-ago levels. Countries such as Argentina, Venezuela and Colombia are driving growth, all places where pay TV penetration is still in its infancy and offers immense opportunity.
DirecTV’s approach to the Latin American middle class is smart, offering value-priced services that bring customers in the door and allow for up-selling down the line. The U.S. market is more mature, but even there, revenue recently rose 7 percent.
The main problem facing DirecTV today is the cost of installing and upgrading systems for consumers. Stronger currencies down south are also putting pressure on profits. Still, with a forward price-to-earnings (P/E) ratio recently near 9, this high-growth company is trading at an attractive price. It’s not dirt cheap, but its margin of safety given its future earnings power makes it rather undervalued for long-term investors.
Ask the Fool
Q: Should I invest in bonds or bond mutual funds? - I.W., Goshen, Ind.
A: Long-term money is likely to grow more quickly in stocks than bonds, but holding some bonds can be smart, especially as we near retirement.
With traditional bonds, you buy them for a fixed sum and the interest rate specifies exactly how much you can expect to receive. If a $10,000 bond pays 4 percent over 10 years, you’ll receive $400 each year. (Then you’ll get your $10,000 back.) If you sell the bond before it matures, you might receive more or less than the $10,000.
Meanwhile, bond mutual funds, often called “fixed-income” funds, typically pay monthly dividends. You may invest $10,000 in one with a yield of 4 percent, but that amount will fluctuate with interest-rate changes and as the fund manager buys and sells various bonds using his judgment. You may receive more or less than your original $10,000 investment upon selling your shares, too. Bond funds also charge annual expense fees, though some are quite low.
Bond funds offer flexibility and instant diversification, but individual bonds permit you to plan your financial future more precisely.
My Smartest Investment
In 1959 a friend suggested that IBM was a solid investment. I knew nothing about stocks, but I bought four shares at $441 apiece, for $1,764. I panicked when the stock fell by $128 soon after, but that was followed by an avalanche of enriching progress. My wife and I ended up selling the shares for a bit more than $7,000 to pay off our house. Rarely is stupidity profitable, but fortunately, for us it was. – R.E., San Pablo, Calif.
The Fool responds: You weren’t stupid – you were just not very informed about and experienced with the stock market. You’re right, though, that by diving in without having done much research, you were taking a big chance.
Some might suggest that you left a lot of money on the table by selling the stock that would keep growing for a long time, but by moving the money into your home, it boosted your worth, too. IBM stock has grown by an annual average of 10.7 percent over the past 30 years, enough to turn $1,000 into more than $21,000.