There are a lot of Sirius XM (NASDAQ:SIRI) investors scratching their heads right now wondering why the stock remained stagnant, in spite of a brief pop, when the news of a long awaited buyback, and a special dividend was finally announced last week. Many analysts thought the news would send the shares over $3. So why the stall? There are a lot of possibilities, but my first guess is that a lot of Sirius shareholders, and traders sold on the news. It is the old "Buy the rumor, sell the news" saying, that lots of investors swear by. But sometimes that can backfire. Like when a lot of these same people sold on great second quarter earnings results, and the big money jumped in and bought the dip, sending the shares soaring. On August 7, earnings were announced and the shares dipped to $2.22 as investors "sold the news". A few minutes later, insiders like Liberty Media (NASDAQ:LMCA), and others, began a two day buying spree, sending the shares to $2.51 on volume over 500 million shares. Suddenly many traders found themselves "out of the game":
|Aug 8, 2012||2.29||2.51||2.28||$2.48||323,525.788||2.48|
|Aug 7, 2012||2.25||2.34||2.22||2.30||191,370,900||2.30|
|Aug 6, 2012||2.17||2.23||2.17||2.20||67,401,800||2.20|
|Aug 3, 2012||2.13||2.17||2.12||2.16||31,099,800||2.16|
And the shares have never dipped that low again. As a matter of fact when you look at the chart, there seems to be big spikes upward, followed by a flat resting period. If history repeats itself we are due for a big spike up. And for whatever reason there is always a small dip preceding the jump. As I have said in other articles, the big dip from the middle of May to the middle of July was due to uncertainty concerning the Liberty takeover. Yet in spite of the drop at the end of May, the pattern going back up the chart is the same (flat followed by a big jump):
One of the buyers during that August shopping spree may have been Steve Cohen's SAC Capital. His company is one of the biggest Institutional investors in Sirius. As a matter of fact it was the second biggest institutional holder at the close of the third quarter according to NASDAQ's latest data:
Sirius XM Radio Institutional Ownership (Top 15)
|OWNER NAME||Date||SHARES HELD||CHANGE (SHARES)||CHANGE (%)|
VALUE (in 1000's)
|VANGUARD GROUP INC||9/30/12||172,838,113||3,282,089||1.94||458,021|
|SAC CAPITAL ADVISORS LP||9/30/12||131,376,600||16,897,064||14.76||348,148|
|WELLINGTON MANAGEMENT CO LLP||9/30/12||128,310,072||(894,860)||(0.69)||340,022|
|BARCLAYS GLOBAL INVESTOR UK HOLDINGS LTD||9/30/12||87,587,648||535,547||0.62||232,107|
|BLUE RIDGE CAPITAL LLC||9/30/12||78,800,000||0||0.00||208,820|
|COOPERMAN LEON G||9/30/12||63,932,303||5,399,800||9.23||169,421|
|STATE STREET CORP||9/30/12||58,973,011||2,584,169||4.5||156,278|
|COATUE MANAGEMENT LLC||9/3012||50,232,181||(10,061,474)||(16.69)||133,115|
|INVESCO LTD||9/30/12||48,376,971||180,319||0 .37||128,199|
|GLENVIEW CAPITAL MANAGEMENT LLC||9/30/12||40,182,920||12,849,000||47.01||106,485|
|TPG-AXON MANAGEMENT LP||9/30/12||31,843,031||(55,480,469)||(63.53)||84,384|
|HHR ASSET MANAGEMENT LLC||9/30/12||31,474,300||540,500||1.75||83,407|
|FRED ALGER MANAGEMENT INC||9/30/12||28,219,146||28,210,679||-||74,781|
And according to those same NAZDAQ reports, the company purchased almost 17 million additional shares of Sirius before September 30. As a matter of fact at the end of the third quarter SAC Capital's biggest holding was Sirius XM:
SAC CAPITAL ADVISORS LP
Holdings as of September 30, 2012:
SIRIUS XM RADIO INC
|AMERICAN INTL GROUP INC||297,788||294,756||9,723.25||8,725,104|
|GILEAD SCIENCES INC||231,972||85,820||58.72||3,138,356|
|ANADARKO PETE CORP||231,076||48,851||26.81||3,027,731|
|TIFFANY & CO NEW||189,686||184,750||3,742.35||3,246,942|
Why would this be important? Normally, it might be significant news. That one of the most successful investors on Wall Street is betting $100's of millions on Sirius XM paying off. However, SAC Capital has come under scrutiny recently for alleged insider trading involving Weight Watchers, which the company denies any knowledge of. According to an exclusive Reuter's article on Friday:
An SAC Capital spokesman said the firm was not aware of any investigation involving Weight Watchers. A spokeswoman for Manhattan U.S. Attorney Preet Bharara declined to comment. A spokesperson for Weight Watchers did not immediately respond to a request for comment.
The new line of pursuit ratchets up pressure on Cohen, 56, one of the hedge fund industry's most successful and best-known managers. The spotlight the probe casts on SAC Capital and Cohen could further rattle the hedge fund's investors, who account for roughly 40 percent of the firm's capital.
And if any of these SAC Capital investors are actually rattled, it could have an indirect affect on Sirius stock. This may account for the small dip on Friday when the story broke. However, according to the article, Cohen's funds have produced an average annual return of 30% over the last twenty years. So this should reassure Sirius shareholders, and the hedge fund's investors that they have picked a winner.
But, another reason some shareholders are suddenly selling is due to the fiscal cliff. On October 15, I wrote an article warning investors not to wait until December to sell any of their investments. Some people listened, while others laughed off the entire idea. But now Wall Street is taking notice and warning that the market will probably begin dropping next week as investors sell to avoid the probable higher taxes in 2013. This is an excerpt from my article in October:
How will all of this affect the stock market? There are several possibilities. A lot of investors will (or already did) sell their holdings before the end of the year, to take advantage of the lower capital gains taxes. Most will (or already did) get back into the market with a new higher beginning cost basis. And many will liquidate some investments to have extra cash on hand to offset the potentially higher payroll withholding. The problem with this is that so many people wait until the very end. They are hoping to get the highest possible price for their investments. Because, who knows where the market will be in two months? If everyone sells, the market will be lower at the end of December. And then if we do go over the cliff, there will be even more people, who were completely caught off guard, selling in January to help make ends meet. Especially if they are about to lose their job. Many of the jobs that could be lost are those (directly, or) indirectly tied to government agencies (due to spending cuts).
And now here we are two months later. The unthinkable has happened. Congress still has not done anything at all to prevent us from going over that cliff. And the worst part of it is that none of them seem to care. Both sides remain stubborn, and unwilling to compromise. The sad thing is that eventually they will have to buckle, and finally come to an agreement. But what damage will have been done to the market and the economy in the meantime? Investors that waited to sell are now getting very nervous.
Ironically there has been a lot of "tax gain" selling. In other words stocks that have made the biggest gains are being sold by the "over $250 thousand a year" targeted group to get a 2012 capital gain, rather than risk the uncertainty of possibly paying 40% or more for gains beginning January 1. Those capital gains taxes may also go up for everyone else, including lower and middle income investors. No one knows for sure what the rates will be in 2013 until Congress comes to an agreement:
"Tax-loss selling is always a factor (but) tax-gains selling has been a factor this year," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
"You have a lot of high-net-worth individuals in taxable accounts, and that could be what's affecting stocks like Apple. If you look at the stocks that people have their largest gains in, they seem to be under a little bit more pressure here than usual."
For some, Sirius XM falls into this category. The gains in the last few years have been over 2000%. So there will be some expected "tax selling", in spite of a "pot of gold" in the form of a special dividend and buybacks in the very near future. But for those who have already prepared for the impeding gloom and doom, this is going to be a great buying opportunity. But keep in mind there are big money funds, Liberty Media, and Sirius watching for the same opportunities. The stock could shoot up over $3 in a single trading day. Remember the shares went up 39 cents in four trading days in August. The stock is currently in a dip at $2.75. If it did jump 39 cents, the price would be $3.14. In my opinion this is the dip before the jump. Nothing is certain in this business, and it is possible the shares could go lower, but don't bet your rent on it.
Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.