Sirius XM: What Fiscal Cliff? Seize Opportunity

| About: Sirius XM (SIRI)

How timely the news last night was. The evening before what is a "triple witching" Friday, or actually a quadruple witching Friday, some bad news hit the wire causing futures to tumble. Today as I write this the markets are down a bit over 1%.

Stock-market futures immediately collapsed in electronic trading late Thursday night when the news broke that Boehner (R-Ohio) had failed to get House Republicans to vote for his Plan B from Outer Space, blowing his all-or-nothing gamble to squeeze some concessions out of President Obama. Stocks fell in Asia, with Japan's Nikkei 225 index ending down about 1 percent.

Markets have calmed down a bit, and the losses are hardly apocalyptic (hi, Mayans!). The Dow Jones Industrial Average was down about 150 points at midday on Friday, or a little more than 1 percent. This is nothing like that time in 2008 when the House of Representatives said, "Eh, no thanks," to a bank bailout and caused the Dow to collapse nearly 800 points in a couple of minutes.

I expected a larger move.

I don't think many are being fooled here, and I think that the general consensus is that our government will get things done in time for January 1st. It may happen at 11:59 on December 31st, but I expect what will be a last minute "hooray!" and a sigh of relief that everything has been kicked down the road a bit for someone else to worry about. Regardless of how you feel about that, it seems that this has become the American way.

That said, the continuing uncertainty in the overall markets brings with it opportunity in stocks which are on solid footing and look ready to push higher as soon as a bit of good news hits the wire.

Look no further than Sirius XM (NASDAQ:SIRI). Having shot up recently from an intra day low of $2.68, the equity hit $3.10 in after hours trading last Friday. Since then it has been consolidating and pushing on the $3 per share mark. The catalyst? Overextended short positions caught off guard by a CRB ruling on Sirius XM's future royalty rate schedule. Many expected as much as 13% for 2013, and the CRB came through with 9%. That's more money to Sirius XM's bottom line for years to come, signed, sealed and delivered. While the window for appeals is still open, I find it unlikely that these numbers will be altered.

Strong auto sales throughout 2012 have pushed subscribers to Sirius XM and provided the foundation for what I expect to be around 2 million net new subscribers for the entire year. If you trust that the country will not fly over the cliff, and end up in a recession, it's reasonable to expect continued strong auto sales and similarly, continued strong net subscriber gains in 2013. On top of this, a $2 billion share buyback plan has been announced and already may be in motion. I believe this will limit the chances of large swings down in the share price, even on general macroeconomic weakness, and that the share price should find support near the 50 day moving average as it has for some time now.

My near term price target on the equity is $3.30, and if this is not hit by the end of the year, I expect it to be hit by the time the company releases Q4 earnings. By year end 2013 I currently have a price target of between $4 and $4.25, but I may adjust this up or down once Sirius XM releases its expectations for 2013. That's a 36%+ upside for the year from $2.95 and I feel I am being conservative in my estimates.

Warren Buffett is often quoted as saying "be fearful when others are greedy, and be greedy when others are fearful." I think the latest fiscal cliff noise is allowing some weakness and some good buying opportunities in strong companies like Sirius XM. In my opinion, Sirius XM has much greater upside potential than downside risk, and will be a great stock to bring into 2013 as part of your portfolio.

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.