A question that seems to be repeated with increasing frequency as a stock trades in a narrow range for longer periods of time is "When is this stock going to move?" Investors see this question posed about nearly every ticker symbol at some point. Usually, it is simply impatience on the part of the person asking, but sometimes it's warranted.
As one who writes primarily about Sirius XM (NASDAQ:SIRI) I see this question far too often lately. I say too often because Sirius XM has actually "moved" quite a bit since July of 2012. It has appreciated by over 70% from that $1.80 mark which dragged through June, to recent closing prices of $3.15. When is it going to move? It just did! And by a very large amount at that.
The most recent point of frustration for investors, it seems, has been January. The problem? Sirius XM has traded in a tight range for just about the entire month. After making a run up from the $2.70's to nearly $3.20 in early January, the share price has simply languished between about $3.10 and $3.18 for the majority of the month. As an investor watching the rest of the market creep up, I can understand some frustration by those invested in Sirius XM as you may feel that you are missing out on potential gains elsewhere.
There's an old Aesop's fable 'The Dog And Its Reflection' which bears mentioning here. Aesop's fables are little stories which are often told to children that each hold a moral, or lesson. The story of the dog is summarized:
In the story, a dog that is carrying a stolen bone, or piece of meat or cheese, looks down as it is crossing a stream and sees its own reflection in the water. Taking it for another dog carrying something better, it opens its mouth to bark at the "other" and in doing so drops what it was carrying.
The moral of which is that one should not lose substance by attempting to grasp at shadow. While loosely applicable as well, the saying "a bird in the hand is worth two in the bush" reinforces the notion that there is greater value in what one has, than what one "might" have.
How can this be applied here? In the case of Sirius XM, for those who are invested, I believe it's best to simply relax and let the share price run its course. While the equity has appreciated "only" 8.6% in January and some other equities have appreciated by greater amounts, the fundamental story of Sirius XM is rock solid. Unless you are comfortable with the fundamental story of another equity to a greater extent than Sirius XM's, then my suggestion is to stop looking elsewhere and stop with the "coulda, shoulda, woulda..." It's an unhealthy practice which leads to impatience, and impatience can lead to error. Like the dog in the fable, you have a big juicy bone in Sirius XM. Best not to drop that chasing ghosts and shadows unless you are absolutely sure about your decision to do so.
What are the most recent bits of Sirius XM's fundamental story? Not only has the company reported in excess of 2 million net subscriber additions for 2012, exceeding original guidance by a considerable margin, it did so in the very same year it rolled out a price increase. On top of this, Liberty Media (NASDAQ:LMCA) has finally gained full control of Sirius XM and I feel that their main interest now will be in synergy with all shareholders of the SIRI ticker. That means increased share prices. How? Continued strong company performance in conjunction with a shrink of the outstanding share count through an announced $2 billion share repurchase program. Furthermore, new auto sales, Sirius XM's primary source of new subscribers, appear to be poised to eclipse last year's numbers by approximately 15%. A juicy bone indeed.
From a technical standpoint, the graph above shows a healthy stock. Healthy appreciation has periods of increase followed by periods of consolidation and that is exactly what Sirius XM has done for some time now. Even during the most recent bear market from November through December Sirius XM held up quite well. Keep in mind that extreme swings in price are not particularly beneficial if you wish to see steady appreciation of your investment. If a stock gets overextended, it may swing back violently and lose those gains in short order. Unless you are a trader, or unless you are looking for the quick "pump and dump," you don't want the share price to appreciate too quickly.
I know what you're saying. This is all great stuff, but this doesn't tell me "when is this stock going to move?" To that I'll say that anyone's guess is as good as mine, but my opinion would be that the equity is due to move "soon." I'd actually prefer to see continued consolidation for the next trading sessions until Sirius XM's February 5th conference call.
Why? Because a rapid rise in share price beforehand could indicate a lot of speculative "bets" and short term players looking for a pop on the earnings call. Often sharp rises before earnings calls are met with selling pressure afterwards unless numbers are handily beaten. Given that some numbers have already been released in early January, there is little left with which Sirius XM could surprise to the upside. Therefore, it is both my opinion and hope that Sirius XM does not receive the next pop until the day of the call. With recent consolidation and tight trading ranges, the stock does appear to be ready to make a move. I think a little more patience will pay off quite well.
Additional disclosure: I am long SIRI $2 January 2014 calls.