Sirius XM (SIRI) has been rising since Friday, when it received a favorable ruling from the Copyright Royalty Board. This put tremendous buying pressure on the shorts, which consist of over 10% of the float. And now on Tuesday, as the markets are rallying around the world, on positive fiscal cliff news, the shares have jumped to a new 52-week high of $3.00. Sirius shareholders have made substantial gains since 2009. According to Paul R. La Monica of CNN Money, the stock is up 2266% since it made its huge run from "near dead" in 2009:
But for many of the longtime Sirius shareholders, these gains are of grave concern. They have been watching the news carefully concerning the fiscal cliff talks, hoping that they will not be forced to choose whether to sell, or face higher capital gains taxes in the future. Many have chosen to sell part, or sell and get back in with a new higher tax basis. But now there has been a major breakthrough in fiscal cliff talks overnight. Both sides have made "significant concessions" for the first time:
The differences over how to resolve the "fiscal cliff" narrowed significantly on Monday night when the White House proposed leaving lower tax rates in place for everyone earning under $400,000.
If those same guidelines are used to determine capital gains taxes, it will affect a large number of Sirius retail investors. Also, there are millions of investors who have been on the sidelines, flush with cash, waiting to get back into the market at the first sign of good news. For many, this was that sign. The uptick for Sirius on Tuesday was 1.17, with a net positive money flow of $4.95 million, according to Barron's.
And there is more news that moved Sirius today:
Goldman Sachs initiated coverage on Sirius XM Radio with a Buy rating and a $3.50 price target. Goldman Sachs noted, "We believe Sirius XM offers investors a mix of robust growth along with accelerating profitability and free cash flow that exceeds peers."
The stock is reacting favorably to all of these headlines as we head into Friday when the options close. Many short investors were already in shock, because according to some of the Internet chatter, they had planned to cover on December 14 when the shares went ex-dividend. However the shares jumped to $2.93 rather than take the expected short-term dive on the ex-dividend day:
|Dec 14||0.05 Dividend|
Now, as the clock continues to tick down to Friday with the real possibility of a concrete fiscal cliff announcement, the shares may go even higher this week. This is great news for Sirius longs with all of the "buy" recommendations and price targets up to $4 a share.
Right now is a good time to buy. Granted, it would be nice to get in at a lower price, and that might be possible next week after the option situation is over. But keep in mind that the company itself is looking for dips as it begins to buyback its own shares. Except for a brief period early this summer, when there was a lot of uncertainty regarding what Liberty Media (LMCA) had in store for Sirius, the price has stayed comfortably above the 50-day EMA.
Although there are some investors that feel this has been a very rocky climb over the last four years, the shares have continued to trend above the 50-day EMA long term. As I said, if we get a dip, it might come next week with a new options month beginning, and Christmas on Tuesday. However, this Grand Slam of a Fourth Quarter ends less than a week after that, on December 31. And anyone who has been following Sirius for a long time will tell you what that means. Just look at the January spikes on the chart above for the last four years.
For instance, on January 4 last year, when Sirius announced record high subs for 2011, the shares soared on the news. The price went from $1.83 to $2.19 in nine trading days:
This activity was caused by historically high net sub additions of 1.7 million for 2011. And since Sirius already has 1.5 million net additions for the first three quarters, most analysts expect that number to top 2 million by the end of the month. That would be a significant increase over last year, which caused such a dramatic increase. So will the $3 hold? No, it won't. By the middle of January 2013, it will be significantly higher.
Disclosure: I am long SIRI.