Timing the market for the average investor may seem like an impossible task. For those who can't watch the market on a daily basis they must either "set it and forget it" with a limit buy order before market open on any given day, or make a quick decision amidst an afternoon of grocery shopping and dropping the kids off at soccer practice, or between business calls at work.
But a little planning goes a long way and if you know the fundamental story behind a stock, then you can better prepare yourself to make strategic purchases at opportunistic times.
When it comes to Sirius XM (SIRI) lately, it seems the stock has followed a pattern of a sharp rise, followed by lengthy periods of consolidation. At the end of this consolidation the stock drops, finds support, and it's off to the races again. Predictable? Painfully so. It's not a case of hindsight being 20/20 here either. A little due diligence goes a long way.
The facts of the situation will show that Sirius XM has been under demand from Liberty Media (LMCA) through all of 2012 and into 2013. Once Liberty closed on its forward contract in July, the stock never looked back to those $1.80 prices and left them far, far behind in rapid fashion. Why? Simple supply and demand, along with a little intelligence behind the strategic buys from Liberty served to raise the share price in a controlled, non-volatile fashion. That's not the only reason, though. Sirius XM as a company has performed quite well through 2012 and looks set to perform well into 2013.
Keeping a simple close eye on auto sales data, and headlines surrounding them, can give investors a glimpse of how Sirius XM may perform in an upcoming quarter. The company gains most of its new subscribers from new auto sales, and with February numbers coming in strong, Sirius XM looks ready to continue 2012's strength going forward.
So why was $2.97 an "absolute steal?" It all goes back to Liberty Media and the simple fact that Sirius XM comprises such a huge percent of Liberty's market cap. In all honesty, Sirius XM is such a large portion of Liberty Media at the moment that the two may as well be tied with an umbilical cord. Savvy investors will understand that what's good for Sirius XM, is good for Liberty Media. Likewise, what's good for Sirius XM's share price, is good for Liberty Media's share price.
So rewind a bit to July of last year. As Liberty made its purchases it spaced them out at strategic points. Shouldn't Liberty have bought as many shares as it could at lower pricing? Perhaps, but by buying in gradual fashion Liberty was able to ensure the share price had defense, and instead of the share price running up to astronomical heights and crashing through the floor on the way back down, the share price stair stepped up in semi-controlled fashion.
That's what investors want to see. Personally, I'll take a controlled penny a day rise on my investments over volatile 20% swings up and down any day of the week. I'll let you in on a little secret here. At 35 years old, I already have to dye my hair as I am nearly completely gray! Additional stress is probably something I don't need.
Now, with Liberty in control, and with Sirius XM having instituted a $2 billion share repurchase program which will effectively retire those shares, I am expecting more of the same. By that I mean controlled, strategic buys which help to maintain the current long term trajectory of the share price. What to use for support? Where can one find this trajectory?
Look no further than the 50 day simple moving average.
It's not a matter of technical support. There are real, fundamental reasons as stated above which I believe will hold the line at the 50 day moving average and maintain that trajectory for as long as possible. So what does this mean for investors who wish to make purchases? Grab your shares at or around the 50 day simple moving average, and consider prices below this mark as an absolute steal.
That's why I say $2.97 was such a great purchase point. Just like $2.68 was on December 14, 2012, just like $2.55 was on November 15th, and just like $2.33 was on September 18th. Any prices that fall below that 50 day moving average while Liberty is guiding this buyback should be looked at as a bargain.
Can this trend break down? Certainly. A watchful eye must be kept on Sirius XM's performance from quarter to quarter. If "bad" trends develop, a sharp drop in ARPU or subscriber additions, for instance, then investors may wish to use caution in the meantime. Likewise, the overall market can and will weigh on Sirius XM's share price. The equity does not exist in a bubble and that can clearly be seen in the recent volatility present in the market being shadowed in increased volatility in shares of Sirius XM.
If you have been following all along, I hope you listened, and I think you will be quite happy soon if you bought on the recent dip. My near term target is $3.40 within the month of March. This is assuming the overall market is cooperative, and the doom and gloom of the sequester is brushed off.
I think it will be. But even if it is not, consider the strength of Sirius XM's performance and the prospects beyond near term volatility. The company is in the middle of a large scale buyback, and Liberty Media is at the helm. Because of this, expect the share price to be defended as much as possible.
Disclosure: I am long SIRI. I am long SIRI January 2014 $2 calls.