by Brandon Matthews
There is a lot of hype building over Sirius XM Radio’s recently leaked new hardware offering that will enable Apple iPhone and iPod Touch devices to be converted into satellite radio’s that will reportedly receive the XM Satellite Radio service. A lot of people are convinced that this docking station is somehow the reason for the extraordinary gains of Sirius XM common stock this past week. Don’t be fooled. Although this single new piece of hardware is promising for the future of Satellite Radio as it takes advantage of the growing popularity of 4G technology as the holiday shopping season begins to loom on the horizon, it has absolutely nothing to do with the rise in Sirius XM share prices. Will the future offer a portable version? Time will tell. There are no doubt critics waiting in the wings to pounce on the new Sirius XM hardware offering as insignificant. Let me save them the time.
For those that follow Satwaves, you already know that despite a lot of misinformed media articles from other sources that have made headlines around the world, we have been pounding the table with regards to the improving fundamentals that Sirius XM has been reporting as the reason to own shares of Sirius XM. Those that heeded the advice have seen their investments grow in unimaginable numbers. Those that heeded the recent bullish catapult alert earlier this week have gained nearly 25%. Stay focused.
As the cash for clunkers program winds down it is clear that auto manufacturers are on track to record quarterly sales numbers. The run rate as reported by Edmunds.com had been as high as 19.6 million vehicles in July. At that time, there had been only 1 billion dollars allocated to the CFC program. Funds were quickly exausted. Sirius XM CEO Mel Karmazin tipped his hand at the Q2 conference call when he announced that Sirius XM had positive subscriber growth in July.
With the arrival of August, we saw an additional 2 billion dollars allocated to Cash For Clunker’s. For the mathematically challenged, 2 billion is two times 1 billion and that 2 billion dollars is almost gone. From a satellite radio perspective, it is a complete success. Combined with an improving economic climate, there can be no doubt that subscriber acquisition rate for Sirius XM Radio will be positive again for the month of August, and in more than substantial numbers.
When one considers the company’s operating cost reductions, positive adjusted EBITDA and improved guidance, it becomes more likely that Sirius XM Radio is on track to record a quarterly per share profit for the first time. Stocks trade on earnings, and thus far, Sirius XM hasn’t had any on a per share basis. An operating profit is one thing. A net profit is another. And Sirius XM Radio speculators are seeing black.
Position: Long SIRI
I fully expect the common stock to hit $1 by the time the 3q conference call is completed. I have very little doubt they will report positive sub numbers, Cash savings and higher EBITDA. Its getting hard to ignore the fact siriusXm has finally put most of the doom and gloom behind them. Lets not forget, We will see some analyst jumping on board with upgrades after 3q as well. One hurdle still to get over is the reverse split and again, Once this stock hits a dollar after 3q even that will be off the table. My guess is by 3q to 4q 2010 everyone and their granny is going to wish they would have bought siriusXm stock at a nickel a pop.
Brandon, As ususal a great article. I would add though that since the SEC has banned naked short selling and brought its first case prosecuting a naked short seller, the big hedge funds and MM’s are becoming less of factor in pushing the price down. I don’t think we can underestimate how much the real enforcement of SEC rules will help return SIRI to it’s true value in SP. It is becoming more and more obvious that this company should never have been a penny stock and will not remain that for long. Tony
Despite the hype re: SkyDock, the real story is the tremendous potential that awaits Sirius XM Radio through the replacement and upgrade of the ageing US auto fleet in the months and years to come. All else – such as availability on other wireless devices, etc. – will be the “icing on the cake” – but not the cake itself. The variety and quality of continuous program availability – only on Sirius XM – makes this service unique and without true competition as terrestrial radio will surely be seen as outdated over time. Institutions are starting to recognize the significant turnaround that Sirius XM is demonstrating and their investment flows are now supporting demand for SIRI. All indications of technical strength for the stock are being reinforced with the action of this past week and further upside is anticipated over all time frames – near, intermediate, and longer term. Objectives are projected toward .90 to 1.00 around November (coinciding with the 3rd Qtr. release); toward 1.50 to 2.00 over the next six months to oneyear; and toward 4.00 over a longer term horizon (50% retracement of the declines since December ‘05). Any near term pullbacks should be well contained and Risk/Reward assessments still strongly favor the holding of long positions for further gains down the line.
Another great article and an excellent week. Long Sirius
Hey Brandon, why is Tyler not as thrilled as you are about the cash for clunkers and auto numbers? He’s taking a more negative view of the upcoming 3Qcc….saying that the increase in cars will actually hurt Sirius in addition to the one time charges as well this quarter.
Spot on Brandon. I do more reading than posting these days, but I decided to chime in and mention that the site is great and your writing; while it has always been entertaining, is now one a whole new level. You have risen to the challenge here, and I appreciate the effort that it takes to keep the quality work coming every week.
thanks Krypto, and Bubba…I cannot speak for Tyler…We often disagree on many things…this is just one of them I suppose…
Brandon,
Once again, you are right on as usual. Satwaves should be recommneded for some type of award for 1 good article after another. I also want to shout out to Rick Aristotle Munnarriz of Motley Fools. He appears to be writing some half decent articles, just have 1 minor question to ask him in 1 of his 3 article. Perhaps he is taking lessons from Brandon, as each and every article Brandon writes is researched and with facts, which lately Rick A. M. is starting to do. congrats to him, can only hope he continues to read Satwaves and also do his own DD before he writes article or is not persuaded to write articles with misleading headlines like in the past, but as I have stated, he has not lately, so congrats to you Brandon as perhaps he is learning that as a writer, he will gain more respect by researching deeply before writing the articles and report facts.
Richard
@Tony Newhouse
As far as banning naked short selling, I thought the ban was just for financial stocks? By the way Brandon, thanks for your efforts.
@truck_driver_tom1
I believe the ruling is no longer restricted just to Financial institutions, but Brandon may be able to address that. Regardless, the word is getting out to these institutions that this type of trading will no longer be tolerated. The attached is for your reference.
http://blog.rebeltraders.net/2009/07/28/the-sec-prohibits-naked-short-selling-permanently-and-considers-uptick-rule-warning-for-storms-ahead/
you may also wish to refer to Brandon’s article dated 7/31/09 titled
“Witnessing the End of SiriusXM Stock Manipulation”.
Technical Update on SIRI: In conjunction with all the emerging positive fundamentals for Sirius XM Radio that have been outlined on these pages over the last few weeks, the technical framework for SIRI has also been strengthening. The rounded bottom that completed only last week (with the sustained takeout of the significant resistance zone at .60) took eleven months to form (from late September ‘08 through August 20, ‘09) and the entire formation held within upper and lower extremes of .60 to .05. As formations such as these often project potential based upon their duration (time) and price range from upper to lower extremes (in this case, .55 potential power on the upside now that .60 has been broken), the rounded bottom formation projects potential now to carry toward 1.15 over the next eleven months. While this is only a technical projection, the indicated potential suggests it is much too early now – after only one day following the confirmed upside break, and only carrying into the .70’s (closing at .70) to expect this upside momentum to abate. In sum – it is much too early on the followthrough – and much to close to the .60 level that has now been significantly breached, to expect upside testing to have run its cours. Institutions are now coming into this market, based upon perceptions of substantial upside potential from current levels. Keep in mind – while the percentage gains from the lows appear substantial – the actual price gains are relatively small. Until the recent improvement in fundamentals began to be apparent, SIRI was holding in extremely narrow daily ranges within the .30’s and .40’s.
We are now only 30 to 40 cents above the levels where SIRI really bottomed out and this is merely a “chip shot” as far as institutional investment decisions are concerned. The stock still looks like a “steal” for all these reasons – even though percentage gains from the extreme lows are impressive. Based upon technical projections and indications of potential – both in terms of time and price objectives – it appears much too early to expect the upside bias to run its course. Any near term pullbacks are likely to meet strong support and recoveries should then ensue – ultimately pushing toward the higher levels that have been projected. An intermediate term target near .90 to 1.00 is indicated for around the time of the 3rd Qtr. release in November. Longer term potential is indicated toward 4.00, as a 50% retracement of the declines from December ‘05 to the lows, now that the resistance trendline of that time span has been decisively broken by the improved fundamentals for Sirius XM and the corresponding shift to technical strength that is now being seen in SIRI.
Charles SCHWAB OFFERS A B RATING ON SIRIUS EQITY. SORRY FOR THE CAPITALS. UNAVOIDABLE.
U
I don’t think naked short selling is banned or illegal. The SEC basically created penalties if the shares are not delivered, after the naked short sales legally took place. They may consider banning it in the September conference, but I won’t hold my breath. Senator Kaufman wants to make it illegal, but I’m not holding my breath. The Democrats are on the same side as Goldman Sachs. As long as a door is open I won’t be entirely confident. Who do you suppose installed the law to make such a thing legal, and for what goal.
@Tony Newhouse
Thank You Tony. That was helpful information.