Last week, Wall Street caught a case of the jitters over uncertainty regarding the Federal government. On Wednesday, rumors were flying that the "central bank may slow or stop its stimulus policy sooner than expected". And some investors are concerned with the new spending cuts deadline, the "sequester fiscal cliff", on March 1. Many stocks fell, including Sirius XM (SIRI), which has been flip-flopping since the first of February. On Wednesday it was at a high of $3.20, and then it closed Friday at $3.05, losing 5% in two days:
|* Close price adjusted for dividends and splits.|
However, there is some good news that will give Sirius bulls a reason to cheer. New car sales for February are expected to be up over January this year, and February last year. This is pretty remarkable considering that consumers have less discretionary income due to higher gas prices and the additional payroll taxes. And, considering that February 2013 has only 24 selling days, compared to January 2013, and February 2012, which each had 25 selling days. Experts believe that auto sales are continuing to rise due to pent up demand:
Edmonds.com forecasts that 1,198,538 new cars and trucks will be sold in the U.S. in February for an estimated Seasonally Adjusted Annual Rate (SAAR) this month of 15.5 million light vehicles. The projected sales will be a 14.9% increase from January 2013, and a 4.3% increase from February 2012.
And, the manufacturers that are expected to be up higher than the industry average, are "Sirius Friendly" companies. General Motors (GM), Ford (F), Toyota (TM), and Chrysler Group are not only predicted to be up, but they are expected to take the lions share of the market for February. GM has negotiated a contract with Sirius that will be implemented in Q4, and is expected to be very lucrative for the satellite radio giant. Ford currently offers the radios on 13 of its most popular cars and trucks, and Toyota just announced it will be expanding its Sirius factory installations on its new models. And Chrysler was the first car company to offer Sirius 2.0 to its customers, in an exclusive deal last year.
Although the share prices of those car companies have not enjoyed the same gains that Sirius has, there is a correlation in the pattern of ups and downs on the chart, compared to the S&P 500, which has a completely different pattern. A lot of the automobile company losses are due to International sales, versus Sirius which only operates in North America. However, as I mentioned in a recent article, this might change.
J.D. Power and Associates is predicting somewhat higher new car sales results for February:
"All signs of the industry's health are positive right now," said John Humphrey, senior vice president of the global automotive practice at J.D. Power and Associates. "Average transaction prices are up, incentives are stable, leasing is at a healthy level and newly redesigned models continue to make an impact on the marketplace." The auto research firm estimates that February auto sales will reach nearly 1.2 million, about a 7% increase from the same month a year earlier. It will be the fourth consecutive month with the annual selling rate at or above 15.2 million vehicles.
Chatter on the financial sites show that investors are questioning whether the share prices are at the bottom; or will they continue to head down into a bear market? Sirius may make a move either up or down this week depending on what Sirius CEO Jim Meyer, has to say when he speaks at the Morgan Stanley Technology, Media and Telecom Conference in San Francisco, CA, this Tuesday. Obviously whatever he says could have a dramatic impact on the share price, unless he has nothing new to report.
Keep in mind the company is in the middle of a $2 billion share buy back, which, unless it has been completed, works better with a lower share price. If that is the case, the price may dip a little lower until after the first March, when it will start back up again. Because (1) there will be less uncertainty about the sequester by then, and (2) due to historically high short positions, buying pressure should send the price up until the options close in Mid-March. Unless you have guts of steel, I suggest holding, with your finger on the trigger as Meyer speaks on Tuesday.
Disclosure: I am long SIRI.