It's hardly news now that Liberty Media has increased their share in Sirius XM (SIRI) to have majority ownership of the company. I held long Sirius a long while ago, before the merger and before Liberty bailed them out. I was lucky to ride the stock from pennies to near the $2 region, where I exited. I was always long-term bullish on Sirius; I loved Mel Karmazin, the original merger man. There was an intangible about Karmazin that I supported -- he seemed hell-bent on success, stood his ground against media titan Sumner Redstone, and brought with him a track record of success in radio that started as early as the late 60's.
I was also long Sirius as a subscriber, and someone who loved his satellite radio. As a Stern fan for years, I was drawn to Sirius and their non-censored broadcasting rules. While at the office, I almost always had the satellite radio on. As time progressed, Pandora (P) nudged into the picture and I started using that for my tunes as well, drawn to its ability to create custom stations based on artist likes.
Karmazin and Liberty CEO Greg Maffei traded quips upon him leaving Sirius; Karmazin claiming he'd be too expensive for Liberty to keep him on and Maffei claiming that no CEO is irreplacable. With the stock at a significant multi-bagger since my first long sentiments, the introduction of Pandora (P) in recent years and the powerhouse CEO stepping down, I started to think about getting back into Sirius, only with a short position this time.
The million dollar question with Sirius is whether or not the success can continue for investors with the new ownership and new CEO.
As before establishing any position, I began to look up the current research and fundamentals on Sirius and was floored to see just how far the company has come in the past year or two since I've stopped paying detailed attention to it. Using a couple of my favorite technical indicators, it appears that everything about the current chart is bearish:
Everything here screams selloff before earnings on 2/5/13. The candlesticks are start to coil and condense on mediocre volume. Both the RSI and Full Stochastics are pointing to be overbought, RSI indicating extreme buying pressure since the late December. The A/D line here shows us that accumulation has already gone bearish, showing volume weighted selling mixed in with the rising price.
The stock had been trading up about 50% for the year 2012, providing absolutely monstrous gains to long investors and on top of that, the company announced a $2.3 billion share buyback in conjunction with a .05 dividend. In addition to that, Sirius closed out 2012 by adding 2 million more subscribers, as auto sales continue to perk up and terrestrial radio becomes obsolete.
Analyst Little Apple points out another great fundamental indicator:
"The fact that Liberty bought the stock right before the options expire on Friday, may signal that Sirius shares are heading significantly higher in the next month. Because, as of December 31, there were over 355 million shares sold short."
It's a crafty catch, because it means that the eventual buying pressure from the $2.3 billion buyback may not only happen during a short squeeze, but could trigger one in itself. The question for the short-term is going to be whether the strength of Sirius earnings combined with the buyback are going to be enough to push the stock through all of these bearish technical indicators. Public sentiment seems bullish heading into earnings, as call options are trading at an almost 3:1 clip to put options, with significant more open interest.
This investor's short term play for Sirius is to let the price coil and correct a bit on the technical indicators before earnings and then scoop up the equity before earnings, hoping to ride the momentum of earnings and the buyback to the 3.50 area before mid-2013.
The short-term risk is a combination of bearish technical indicators with a poor earnings report -- which would have a chance to get messy for investors trying to make a quick move. You could try and write 3.50 calls to hedge yourself, but they'd have to be contracts for later in the year, as the premiums are mostly non-existent.
There's an earnings play to make here, but it's going to be tough and is going to have to be well thought out.
After doing my research, this is where I fall. I'm once again long-term bullish on Sirius. This three year chart echoes my sentiments about technical indicators, helps point out the gorgeous ride Sirius has had, and shows the direction we're heading:
No surprise, this investor's long-term Sirius strategy buy and accumulate the equity. If you want to take a long-term position in Sirius, why not make half your investment in a few days, hoping for a pullback before earnings. Then, make the other half of your investment after earnings to either average down or up. If you're bullish mid to long term, scoop up $3.00 calls, too.
With Sirius' increasing cash-flow position and profitability (after 11 years of not being profitable), it's important to point out that the fundamentals of the company have never been more sound. Sirius appears to be a train chugging along to top-speed in the right direction.
Long-term risk lies in how effective competition can be, namely Pandora. There is going to be competition between the two, but due to the fact that this investor still finds satellite radio to be an emerging market (yes, after 15 years -- how many people do YOU know with satellite radio), I think it'll be a long-time before these two have to start specifically going after each others business and not new subscribers. Mid and long-term risk also is associated with the new governance of the company due to Liberty's ownership. So far, it appears Liberty is on the side of the common shareholder -- and it's important they manage the stock as well as the company.
One thing is for sure, it's a new epoch for Sirius, and I think the company has the tools in place to make it an era of parlayed success rather than a grey cloud era. No matter your stance on Sirius short and long-term, I wish all investors the best of luck.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.