I follow several stocks closely. (By "closely," I mean that these stocks are among 10 to 20 I view obsessively throughout the day). The other several hundred or so get quite a bit less attention. Lately I have spent significant amounts of time getting to know Sirius XM (SIRI) and Research In Motion (RIMM).
From a technical standpoint, a comparison of SIRI and RIMM resembles the twin sisters in high school headed in opposite directions vis-a-vis popularity, good looks, and 'most likely to succeed' designations. Both charts look 'bad'-- your perspective dictates the meaning you connote with one of our language's most versatile words.
(Charts courtesy of Schwab's StreetSmart Edge; Click all to enlarge)
I will spare you the obvious details, particularly about how SIRI and RIMM each violated their 50-day moving averages; both performances worthy of a late night slot on Cinemax.
The Williams %R, an indicator I use in my trading and investing, rides in oversold territory for RIMM and overbought territory for SIRI. However, investors should exercise caution when evaluating the Williams %R. When the Williams %R holds either oversold (under -80) or overbought (over -20) and sustains itself in that territory, the likely tip-off is that the trend might not actually be prepared to reverse. Instead, when a stock powers along as oversold or overbought, it takes sustained and intense selling or buying to keep it there. In another words, the trend is your friend.
As Seeking Alpha readers may have noticed, I believe in both technical and fundamental analysis. I probably use the former more often, but I tend to focus on fundamentals in many cases. At present time it's pretty clear that SIRI's fundamentals are lacking and RIMM's appear relatively sound. I have two problems with fundamental analysis in the here and now -- (1) It often takes what management tells us as gospel for informing future predictions and (2) It ignores 'the story'.
Like it or not, a story often drives stocks. What factor other than the story surrounding Steve Jobs' health and other noise could be keeping Apple (AAPL) down? It's almost a sin that AAPL does not trade at $400. Another prime example of a story driving a stock is Netflix (NFLX). It's almost like framing political debate. Right now, the bulls own the story on Netflix. It's the prominent line most institutions are running with. As with AAPL, big investors -- and presumably many at the retail level -- ignore reality and decide based on the story.
For SIRI and RIMM, it could very well be that the story drives the stock, as of today and the immediate past. However, the difference between SIRI, RIMM, AAPL, and NFLX is that investors likely have the story straight going forward.
While I think manipulation could be at play in SIRI's case and that RIMM bulls make a good case for a turnaround, the present story that drives each stock today should, largely, remain intact. Consider a comparison between the two companies.
- Public performance. There's no question that Sirius XM CEO Mel Karmazin inspires Bezos-like confidence in investors. On the flip side, RIMM Co-CEOs Jim Balsillie and Mike Lazaridis look to be in a battle over who can inspire less confidence.
- Expectations. The Amazin' Karmazin takes a page out of Steve Jobs' PlayBook (pun intended) by setting expectations low. He uses the Japan disaster as a wink and a nod to analysts to brace for less-than-stellar Q2 results. There's nothing better than a CEO who you can count on for under-delivering and over-performing. Meantime, in one breath Balsillie cannot tell you how many enterprise customers actually want RIMM products (Apple can for iPhone and iPad), yet, in the next, he sticks to absurd guidance for the company's FY2012.
- Momentum. RIMM has none. SIRI has a whole bunch... and then some. I have made my case about RIMM's emerging irrelevance to consumers and increasing irrelevance to enterprise thanks to Apple and Android (GOOG). All we can really do now is wait to see how it plays out. I think it's safe to argue that RIMM has no momentum whatsoever. Karmazin, on the other hand, proves that he is moving Sirius XM's ship forward. He keeps investors chomping at the bit for the next step in his company's evolution -- SatRad 2.0 -- while dropping the carrot about Sirius XM's plans to capitalize on the massive Latino market. The difference between stagnant and dynamic is clear from a glance at the RIMM and SIRI charts.
Intuition leads me to believe that investors should prepare for the bottom to fall out of SIRI and RIMM to rebound. Sometimes, however, the trend is your friend. To guard against short-term burps in each stock's trajectory, I suggest playing SIRI's rise and RIMM's continued fall with LEAPS options. You can see how I suggest playing RIMM here. That strategy has no reason not to remain intact. This freefall has no end in sight, and it's not going to get better with Q2 results and an eventual guidance miss for the full year.
As for SIRI, out-of-the-money $2.00 LEAPS were once the stuff dreams were made of. To some extent, they still are. However, there's a certain allure to buying relatively cheap out-of-the-money calls on a stock like SIRI. It offers the illusion of massive richs if you're correct. I usually tend to urge caution with this strategy, but throwing a few dollars a month for the next few months at SIRI January 2013 $2, $2.50, and $3.00 LEAPS call options doesn't give me indigestion.
(Quotes courtesy of Yahoo! Finance - Click to enlarge)
Because time decay does not become a factor until we get into 2012, you have time on your side. If the stock pulls back, you can buy more options. Really, it's not much different from buying the stock itself on a dip. Given the performance Karmazin turned in last week, SIRI's momentum and the upside inherent in future and all-but-guaranteed developments, I have a hard time not seeing SIRI
past the $3.00 level come this time next year. Sadly, while it probably won't be $3.00, I see 3's in RIMM's future as well. Expect the stock to take out the $40 marker prior to the end of the 2011.
Additional disclosure: Author may initiate a position, long or short, in AAPL, RIMM, or NFLX at any time.