Will the fiscal cliff ruin the "Santa Claus Rally" this year? My first impression was yes. But I will be the first one to admit that I might be wrong. For those of you that are unfamiliar with what this is, here is the definition according to Investopedia:
A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations for the Santa Claus Rally phenomenon, including tax considerations, happiness around Wall Street, people investing their Christmas bonuses and the fact that the pessimists are usually on vacation this week.
There are a lot of analysts that think it is actually the result of investors buying stocks in anticipation of the market going up in January which is called the "January effect." But some stocks have other variables that affect the price in January. For many companies December is the end of their "Golden Quarter," and the results start trickling in after the first of the year, which tends to magnify the "January effect."
Last year during this time, Sirius XM (SIRI) was traveling to its own beat, and remained basically flat. However, it did (slowly) jump almost ten cents, from a low of $1.78 on December 23 to a high of $1.88 on January 3:
|Jan 3, 2012||1.84||1.88||1.83||1.86||44,067,300||1.83|
|Dec 30, 2011||1.81||1.83||1.81||1.82||19,715,300||1.79|
|Dec 29, 2011||1.81||1.83||1.80||1.82||20,435,700||1.79|
|Dec 28, 2011||1.81||1.83||1.80||1.81||23,433,300||1.78|
|Dec 27, 2011||1.80||1.82||1.79||1.82||20,157,400||1.79|
|Dec 23, 2011||1.79||1.81||1.78||1.81||17,511,700||1.78|
|Dec 22, 2011||1.80||1.82||1.79||1.79||19,702,200||1.76|
|* Close price adjusted for dividends and splits.|
Then, quite unexpectedly on January 4, the company announced record breaking net sub additions of 1.7 million for 2011. This led to a sudden rally that sent the shares up to $2.19 in less than two weeks. Here is an excerpt from that press release last year:
Sirius XM Radio, at a conference today announced that it ended the year with nearly 21.9 million subscribers, reporting approximately 540,000 net new subscribers in the fourth quarter and approximately 1,700,000 for the full year 2011.
|Jan 17, 2012||2.16||2.19||2.14||2.16||65,423,200||2.12|
|Jan 13, 2012||2.11||2.17||2.11||2.14||81,275,100||2.10|
|Jan 12, 2012||2.05||2.12||2.04||2.11||71,261,900||2.07|
|Jan 11, 2012||2.04||2.06||2.02||2.04||36,889,800||2.00|
|Jan 10, 2012||2.07||2.09||2.04||2.05||59,659,100||2.01|
|Jan 9, 2012||2.02||2.08||2.00||2.05||75,565,300||2.01|
|Jan 6, 2012||2.05||2.06||1.97||2.00||46,052,400||1.96|
|Jan 5, 2012||1.90||2.04||1.88||2.04||121,839,100||2.00|
|Jan 4, 2012||1.85||1.92||1.80||1.83||69,355,400||1.80|
|* Close price adjusted for dividends and splits.|
So last year, the combination of the Santa Claus Rally, the January effect, and historically high net subscriptions sent the shares up 41 cents, for a 23% gain. If the same thing were to happen this year, and the shares jumped 23% from $2.92, the new price would be $3.59 in less than a month from now. Or you can look at the fact that Sirius is up 60% over last year. If this trend continues, then the price will be $3.50 by January 17 ($2.19 up 60%):
And there is a very good chance that the subs will be historically high again this year. For the first three quarters, the net subs for 2012 already total 1.5 million. That means that even though there have been an average of five hundred thousand net sub additions per quarter, the company only needs half of that for Q4, to have the subs come in historically high at over 1.7 million for the year. The most likely number will be around 2 million net adds for 2012. When and if, the share price jumps will depend on the date the total subs are announced. But the anticipation of this announcement may be the fuel for the Santa Rally this week.
I really expected the shares to drop on Wednesday, due to the option expirations last week, and the fact that a lot of investors are taking some time off. But in spite of very low volume, that did not happen. There is the gloom and doom with the fiscal cliff, but right now there is also a small ray of hope that both sides will meet again and try to work something out before January 1. If not, Sirius shares will be affected somewhat, but I think most of the damage has already been done. Hopefully, there are not a lot of investors still clinging to the idea that the capital gains tax will remain the same in 2013. But some analysts still think that the "tax-gain selling" is not over yet.
However, keep in mind that there is a small safety net with the planned company buybacks. If the price of Sirius drops too low, the company can buy shares; and it should. I expect that the "new team" will want to buy before the end of this quarter. This way there will be a lower share count for the Q4 Conference Call. Obviously, that is pure speculation on my part, but since Liberty Media (LMCA) will be taking control of Sirius as soon as it gets FCC approval, I think that both companies want to get this show on the road.
Because the sooner the price goes up, the sooner Liberty can sell into the buybacks for a higher share price. This is good for everyone that owns Sirius. I know there are a lot of investors hoping for a drop (guilty), so they can pick up some more shares. But, except for the possibility of volatility from all of the cliff noise, history is bound to repeat itself with a rally that will go right into the Conference Call; which means that this is the dip.
Disclosure: I am long SIRI.