Wednesday's reception of Ben Bernanke's speech was extremely positive, gapping up indexes in Thursday's trading and pushing many equities to new heights. While markets seemed to pause in Thursday's action, at least one stock was blowing the roof off of a long time share price cap.
The stock in question? Look no further than Sirius XM (SIRI). Up nearly 3% on the day, the greater picture is a 23% run from recent lows of $3.04 per share just weeks ago. If you listened to the bears near the bottom, or even followed their lead, you are absolutely kicking yourself right now having missed what has been the most rapid and extensive run in share price in a very long time.
For those who sent me messages in a panic as the stock went down within that red box, I hope you hung in there or bought more as I suggested. Sticking with the plan of buying at or near that yellow line, the 50-day moving average, has been key all along. Using market weakness to add to your position in Sirius XM has been strategically important. And understanding the fundamentals which will get you to $4.25 or more by January 2014, and which are driving this company's share price higher and higher as the year moves onwards, will help you remain calm and react accordingly during periods in which the stock pulls back.
Let's review what is driving this stock and getting us investors higher and higher share prices as the year goes on.
Strong subscriber growth.
Sirius XM started the year, as it always does, with conservative subscriber guidance of 1.4 million net additions. But when it adds subscribers at over 700 thousand in one quarter alone, does anyone really believe that they will not at least meet and very likely beat that guidance?
This has been the norm for years, folks. Sirius XM has guided low and raised estimates as the year progresses for a long time now. For all of those who say guidance is disappointing at the beginning of the year and then wait until Sirius XM beats that guidance, you wait and chase runs in the stock and don't get the best pricing. Until something changes on this front, expect Sirius XM to continue to beat guidance so long as auto sales remain strong. Also remember, Sirius XM's pursuit of other channels for new subscribers such as the large number of inactive radios installed in used cars only serves to bolster an already impressive rate of growth.
Sirius XM has guided that it will perform at least $2 billion in share repurchases and in my opinion will likely increase that number in the second quarter conference call. While this is currently less than 10% of Sirius XM's market cap, it's still a significant amount of money and serves to gently raise the floor on the stock as time progresses. So long as the company continues to perform (see strong subscriber growth above) then the share buyback is an effective tool.
Not only does the buyback remove shares from the float increasing per share value, but it can be looked at as the company investing in itself. So long as the company continues to perform, then the effect of the buyback increases down the line. $2 billion repurchased at price X is worth $3 billion repurchased if the price goes up 50% down the road. Thus, share repurchases at lower prices in the past are already paying off in spades given that, at present, any shares repurchased to date would currently be more expensive to buy.
So long as the company continues to perform well, the share buyback is a good way for the company to return capital to shareholders.
Critical importance to Liberty Media (LMCA)
John Malone's Liberty Media went to control Sirius XM early in 2012. Since Liberty's pursuit of control of Sirius XM shares have absolutely soared, moving from the low $2's per share when Liberty closed on its first forward contract for 302 million shares last July, to the current, and rising, $3.73 per share investors currently enjoy.
As I have stated in the past, the large portion of Liberty Media's market cap, which is made up of its investment in Sirius XM, is critical to John Malone's company. In short, it gives Malone leverage to pursue other ventures and this can be seen in Liberty's use of margin loans against its stake in Sirius XM.
Notions that Liberty may quickly and dangerously ratchet up Sirius XM debt in order to spin the company free and clear should probably be set aside. Again, as long as Sirius XM continues to perform, Liberty will be unlikely to want to rid itself of its largest holding.
Stay the course.
So, what to do now that Sirius XM has hit new highs? Hold strong! The fundamental story of the company has not changed. Want to buy? Grab the next dip at or below the 50-day moving average. Need or want to sell? Only you can make that decision, but in my opinion the longer-term gains of Sirius XM will reward the patient and steadfast investors. Investors who, wisely, block out all that bearish chatter that seems to dry up when the stock makes moves higher and higher.
Additional disclosure: I am long SIRI January 2014 $2, $2.50, $3 and $3.50 bull call spreads to $4 per share.