After years of research, I am still baffled by some of the patterns that are found in the stock market. Some investors swear by them, while others are not even interested. There are many analysts that will argue that patterns are not important. However, when they are statistically significant, the ones that ignore them might be losing out on some extraordinary gains. One of those patterns is an imaginary "trend line" made from the share prices of Sirius XM (SIRI), Apple (AAPL), Dillard's (DDS), and Liberty Media (LMCA).
As you can see from the chart below, for the last two years, the prices are very tightly woven. And, they are completely independent of the rest of the market. The NASDAQ and DOW (yellow and orange) are running significantly lower, and flatter than the "trend line."
So why is this important? Because it can be used to help determine a stock's movement in the future. Consider the price of Dillard's (red): it jumps above the "line" several times over the last year and a half. Those "jumps" are followed by dips that bring it back in "line". So just from this chart alone, either Dillard's is in for a drop, and/or the other three companies are in for a rise. Sirius (blue) and Liberty (purple) both dipped from the "line" in May due to the uncertainty brought on by Liberty's hostile takeover of Sirius. Now many Sirius/Liberty investors have either calmed down about the takeover, or they have been replaced with other people that don't mind the idea. Currently their prices are almost back in line with the other two companies. Obviously, a prudent investor would not go by this alone, but they might use it in conjunction with a company's fundamentals, and other forces affecting the stock and macro economy at the time.
The next question is why is this happening? What does a retail stock like Dillard's have in common with a tech giant like Apple? Liberty and Sirius are both media stocks, and there is a direct correlation due to the fact that Liberty now owns almost half of Sirius. However, that has not always been the case. Except for Apple (green), Liberty (purple) was following the "line" on the chart below, even before it became a major owner of Sirius. And the huge dip that Sirius suffered from the merger of Sirius and XM was preceded by a sharp drop in Liberty and Dillard's. Even Apple experienced the same dip, on a much higher level, as it left the "line" (long term) with the development of the iPod and the iPhone. Yet the pattern is the same. All four companies ascended from the dip at the same rate. Again this was completely independent of the rest of the market (yellow and orange). In 2000 Apple and Sirius jumped in price and deviated from Dillard's for a short time, only to fall back a year later.
It occurred to me that there must be some similarities between the owners of the four companies. Since I don't have the time or interest to trace all of the owners back to 1995, I am only focusing on today. Below, I have compiled a list of the top institutional holders, of all four companies, as of the latest data reported at the end of Q3. As you can see Vanguard Group and BlackRock Institutional Trust are in the top ten holders of each of these four companies. And FMR, the top holder of Apple is in the top ten holders of Sirius. Invesco is also a major player in Apple and Sirius. I am sure that with some digging into the complete ownership of each company, there would be many more similarities. For instance, according to Barrons, the top mutual fund owners of the companies include several of the same Vanguard and Fidelity funds. So far the newest data has not been released for all of those funds, which is why I have not listed the details of their ownership here.
Considering that all four companies have been on a steady incline for the last three years, in spite of a flat market, there is no reason to think that this trend won't continue long term. Obviously, there will be some bumps and dips along the way. The first obstacle in the path is the fiscal cliff. And the result of the negotiations could affect individual stocks, the market, and the entire economy as a whole. But for those interested in long-term investments, these four companies are solid, and the Big Money seems to agree:
SIRIUS XM Top Institutional Holders:
|VANGUARD GROUP, INC. (THE)||172,838,113||3.32||447,650,712||Sep 29, 2012|
|S.A.C. CAPITAL ADVISORS, LLC||131,376,600||2.52||340,265,394||Sep 29, 2012|
|WELLINGTON MANAGEMENT COMPANY, LLP||128,310,072||2.46||332,323,086||Sep 29, 2012|
|BlackRock Institutional Trust Company, N.A.||87,587,648||1.68||226,852,008||Sep 29, 2012|
|FMR LLC||84,759,511||1.63||219,527,133||Sep 29, 2012|
|Blue Ridge Capital LLC||78,800,000||1.51||204,092,000||Sep 29, 2012|
|OMEGA ADVISORS INC.||63,932,303||1.23||165,584,664||Sep 29, 2012|
|Coatue Management, LLC||50,232,181||0.96||130,101,348||Sep 29, 2012|
|Invesco Ltd.||48,376,971||0.93||125,296,354||Sep 29, 2012|
|UBS AG||46,078,974||0.88||119,344,542||Sep 29, 2012|
APPLE Top Institutional Holders:
|FMR LLC||45,494,145||4.84||30,349,144,129||Sep 29, 2012|
|VANGUARD GROUP, INC. (THE)||40,986,611||4.36||27,342,168,198||Sep 29, 2012|
|BlackRock Institutional Trust Company, N.A.||25,351,873||2.70||16,912,234,478||Sep 29, 2012|
|PRICE (T.ROWE) ASSOCIATES INC||23,480,146||2.50||15,663,605,396||Sep 29, 2012|
|JP MORGAN CHASE & COMPANY||16,256,419||1.73||10,844,657,114||Sep 29, 2012|
|Susquehanna International Group, LLP||16,078,544||1.71||10,725,996,702||Sep 29, 2012|
|Invesco Ltd.||14,483,535||1.54||9,661,966,198||Sep 29, 2012|
|NORTHERN TRUST CORPORATION||13,459,777||1.43||8,979,017,236||Sep 29, 2012|
|Bank of New York Mellon Corporation||12,679,540||1.35||8,458,521,134||Sep 29, 2012|
|JANUS CAPITAL MANAGEMENT, LLC||9,180,352||0.98||6,124,212,819||Sep 29, 2012|
DILLARDS Top Institutional Holders:
|DIMENSIONAL FUND ADVISORS LP||3,201,093||7.42||231,503,045||Sep 29, 2012|
|SMITH (DONALD) & COMPANY INC.||2,055,512||4.77||148,654,627||Sep 29, 2012|
|VANGUARD GROUP, INC. (THE)||2,008,644||4.66||145,265,134||Sep 29, 2012|
|ACADIAN ASSET MANAGEMENT||1,541,667||3.58||111,493,357||Sep 29, 2012|
|Evercore Trust Company, N.A.||10,647,419||24.69||770,021,342||Sep 29, 2012|
|NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION||1,117,988||2.59||80,852,892||Sep 29, 2012|
|LSV ASSET MANAGEMENT||1,042,210||2.42||75,372,627||Sep 29, 2012|
|BlackRock Institutional Trust Company, N.A.||927,980||2.15||67,111,513||Sep 29, 2012|
|BMO Financial Corp||922,083||2.14||66,685,042||Sep 29, 2012|
|FIRST TRUST ADVISORS LP||874,492||2.03||63,243,261||Sep 29, 2012|
LIBERTY MEDIA Top Institutional Holders:
|BERKSHIRE HATHAWAY, INC||5,500,000||4.99||572,440,000||Sep 30, 2012|
|Horizon Kinetics LLC||5,078,471||4.60||528,567,261||Sep 30, 2012|
|Capital World Investors||4,356,187||3.95||453,391,942||Sep 30, 2012|
|Clearbridge Advisors, LLC||4,222,224||3.83||439,449,073||Sep 30, 2012|
|OZ MANAGEMENT, L.L.C.||3,527,666||3.20||367,159,477||Sep 30, 2012|
|VANGUARD GROUP, INC. (THE)||3,214,570||2.91||334,572,445||Sep 30, 2012|
|BlackRock Institutional Trust Company, N.A.||2,996,036||2.72||311,827,426||Sep 30, 2012|
|Capital Research Global Investors||2,797,548||2.54||291,168,795||Sep 30, 2012|
|PRINCIPAL FINANCIAL GROUP, INC.||2,306,678||2.09||240,079,046||Sep 30, 2012|
|KENSICO CAPITAL MANAGEMENT CORP||2,158,900||1.96||224,698,312||Sep 30, 2012|
There is something else that all four companies have in common. They are (Sirius plans to) all buying back their own stock, which raises the value of those shares by lowering the float. With this tool, a company can act as a safety net for shareholders by buying shares when the price per share drops. According to our imaginary line, Dillard's is up, and Liberty, Sirius and Apple are down. As I said earlier, any of these would be a good buy as a long term hold. Apple and Dillard's also pay a dividend to their shareholders. On Monday Dillard's announced that not only would it pay the regular five cent dividend, but there will be a special one-time $5 per share special dividend for shareholders of record as of December 7, to be paid on December 21. This was a brilliant play on the part of management to keep the share price up, at least until December 21.
However, if you are hesitant about getting into the market due to possible short term volatility, Sirius is the "power play" right now. It has not started buying its shares back yet, and there is still some uncertainty with the Liberty takeover. The company is dependent on new car sales to keep selling subscriptions to its satellite radio service. Not only are those car sales strong, but they are growing stronger each year due to the huge number of aging automobiles in America. Any dips in the share price will offer great buying opportunities. Once Liberty has FCC approval for taking over Sirius, the company plans to announce a buyback or special dividend, which will send the shares over $3, and probably much higher in the very near future.
Disclosure: I am long SIRI.
Additional disclosure: I may buy any of the stocks mentioned in the next 72 hours.