Look Out Google Inc (GOOG), TV Ads are Coming Back

Ways to play

DirecTV (NASDAQ:DTV) has an enviable position in the U.S. market, which it is managing for profits rather than growth. Adding the ability to target ads should help improve margins in the domestic market. For growth the company is looking to Latin America. Although there have been issues in Brazil, the company is still a dominant provider in the region.

The company’s revenues have grown every year for a decade, going from around $10 billion to nearly $30 billion last year. That’s more than twice the size of competitor Dish Network’s top line. Earnings have been more variable, but have gone from a little under a dollar a share at the end of the 2007 to 2009 recession to over $4.50 in 2012. DirecTV (NASDAQ:DTV) clearly has material earnings potential. And, with a trailing price to earnings ratio in the low teens, value and growth investors should find it of interest.

Cablevision Systems Corporation (NYSE:CVC) is a turnaround candidate that is improving its business with the availability of targeted ads. The company’s 2012 sales tally of $6.7 billion was essentially flat year over year, but down from about $7.8 billion in 2009. Earnings have declined for three straight years and it lost about a nickel a share in the first quarter.

However, the company operates in the wealthy New York, Connecticut, and New Jersey markets. Although growth is likely to be slow, its customers tend to be wealthy and willing to spend. That makes the company’s customers desirable to advertisers, particularly if they can target their ads. Although a heavy debt load is an issue, the company has a solid business and potential upside if management focuses more closely on its cable assets.

Resurgence

Technology changes things very quickly. Google Inc (NASDAQ:GOOG)’s advertising muscle, for example, looks like it could be starting to atrophy. That’s a problem that investors should monitor closely.

DirecTV and Cablevision Systems Corporation (NYSE:CVC), meanwhile, look set to benefit from targeting technology shifting from the Internet to television. Investors should keep an eye on both, though DirecTV seems to be the best combination of value and growth at the moment.

The article Look Out Google, TV Ads are Coming Back originally appeared on Fool.com and is written by Reuben Brewer.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends DirecTV and Google. The Motley Fool owns shares of Google. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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