Information is beginning to trickle in showing the institutions that invested in Sirius XM Radio (SIRI) in the 4th quarter of 2012. The list is not complete yet, but one new entry stands out. According to NASDAQ, Winslow Capital Management, LLC purchased almost 125 million shares last quarter, making it the 4th largest institutional owner of Sirius. The company was founded in 1992 by Clark Winslow, and focuses on its high net worth investors. Winslow only buys fundamentally sound stocks that are put through very rigorous analysis. Winslow designs portfolios that will outperform the Russell 1000 Growth Index over time. And the selection process appears comparable to an investment boot camp. Seven hundred companies enter camp, and only sixty emerge with fundamentals good enough for Winslow to consider:
Our bottom-up investment process is fundamentally driven, with an underlying valuation discipline that is important to stock selection. We seek to identify the best businesses from 700 companies over $4 billion in market capitalization.
The Winslow Capital growth equity universe is created through a quantitative screen of the Russell 1000 and FactSet to narrow the list of potential stocks to approximately 300 companies. We qualitatively assess and identify purchase candidates from these remaining 300 stocks. This thorough qualitative assessment narrows the list to approximately 100 companies that meet our definition of high-quality growth. We conduct an active research review of these remaining 100 stocks, applying valuation disciplines as part of our analysis. The end result is a carefully constructed portfolio of approximately 60 stocks.
It is always reassuring to have a discriminating company like this select a stock that you picked. Because it confirms the fact that the company is a fundamentally sound investment. Most Sirius bulls know the company is fundamentally solid, but seeing it pass through the "hoops" of expert analysis never hurts.
As expected, Sirius reported Q4 earnings on Tuesday which were up 120% over Q4 last year. And earnings for 2012 were up a whopping 720%. Most of that was due to the use of Net Operating Losses or NOLS. According to the earnings call, there are still $7 billion in NOLS left. John Tinker, from Maxim asked Sirius CFO David Frear:
John Tinker, Maxim: Could you just touch on the $3 billion income tax benefit that went through the P&L, and where your NOL now stands?
David Frear: The NOL will be in a footnote to the K. I think it's around $7 billion. And it should shield taxes for the next several years. The $3 billion income item is the reversal of the deferred tax valuation allowance. It's a sort of GAAP driven disclosure, but from an investor's perspective, it's the future shield of taxable income that will really matter in valuation.
Many investors have jumped on the Sirius Bandwagon since Liberty Media (LMCA) took over. Although the company has had solid financial and operational results for the last several years, many felt that it was not operating at full capacity. There has been a lot of internet chatter for the last six months speculating that Liberty plans to take Sirius global. Considering a remark made last summer to the Wall Street Journal by Liberty Media Chairman, John Malone, the idea is not that far-fetched:
So I tend to be looking out 10 or 20 years, whereas I think Mel (Karmazin) in all honesty right now has got a pretty short-term focus. I think they do an excellent job of running the company (Sirius) but we would be making more investments and... would at least look at globalizing.
Some investors theorize that the satellites that are currently in place could easily provide service to Mexico and South America. And now, on Wednesday, all eyes are suddenly on the European Media Market, as Malone struck yet another mega deal via Liberty Global (LBTYA):
Malone, through his Liberty Global Inc unit, has made his most audacious bet yet on the burgeoning European cable market, striking a deal for about $15.75 billion to acquire Virgin Media Inc, the cable group in which fellow billionaire Sir Richard Branson holds a 3 percent stake. The deal is Malone's biggest ever in Europe and puts him in direct competition with Rupert Murdoch, the News Corp chairman who controls Britain's BSkyB.
If Sirius can ride the coattails of this deal, and become a "worldwide" household name, there will be a lot more global investors and institutions willing to jump in. As a worldwide radio company, the subs could double from the current 24 million to 50 million almost "overnight". The share price could jump dramatically, as a direct result of a huge global market. All of this is pure speculation right now, but since it is John Malone's vision, the chances of it becoming a reality are significant. And if it is a reality, the share price will skyrocket. Consider that when Malone made that statement, the shares were suffering from the "Sell in May" summer doldrums at $1.82. And they have almost doubled in price to a high of $3.25 in the six months since then:
|Date||Open||High||Low||Close||Avg Vol||Adj Close*|
|Feb 1, 13||3.17||3.25||3.11||3.16||88,255,500||3.16|
|Jan 2, 13||2.95||3.19||2.95||3.14||61,529,100||3.14|
|Dec 14, 12||0.05 Dividend|
|Dec 3, 12||2.79||3.01||2.68||2.89||68,688,200||2.89|
|Nov 1, 12||2.81||2.96||2.55||2.77||77,337,000||2.72|
|Oct 1, 12||2.59||2.97||2.56||2.80||87,343,400||2.75|
|Sep 4, 12||2.53||2.60||2.33||2.59||65,920,500||2.54|
|Aug 1, 12||2.18||2.64||2.09||2.53||79,503,900||2.48|
|Jul 2, 12||1.84||2.20||1.84||2.16||42,766,900||2.12|
|Jun 29, 12||1.88||1.89||1.82||1.85||74,155,200||1.82|
|* Close price adjusted for dividends and splits.|
Independent investors and institutions alike are scooping up shares of Sirius based on fundamentals, and speculation on the direction that Liberty is taking it. Right now, 2 billion shares of the company are owned by 463 different institutions. This represents 30% of the reported 6.6 billion shares. So far, the top three institutional owners of Sirius remain the same. Vanguard Group remains on top with almost 173 million shares. Number two and three, SAC Capital and Wellington Management have not reported yet. And of course, Winslow Capital is now fourth.
Disclosure: I am long SIRI.