Warren Buffett, arguably the most successful investor in the world, once said, “It's never paid to bet against America.” He’s advised that “We come through things, but it’s not always a smooth ride.” Essentially, Mr. Buffett has a certain perspective, not only on investing as a whole, but also on the resiliency of Americans and those we have empowered to lead us.
I have always been a long on this country and the last several trading sessions have done little to change my outlook on where our market and economy is heading. This is the exact same way I feel about my current investments; Sirius XM (SIRI) in particular. To continue with the theme of Mr. Buffett, there have been two prevailing aspects of the market that have caused the declines that we have witnessed thus far; market fear and market greed – both can be our best friends and our worse enemies.
This week, “greed” for a lack of a better term, is good! Gordon Gekko’s famous line from the hit 1986 movie Wall Street was my blueprint for the fear that plagued the market. Simply put, I was greedy and encouraged astute investors to do the same. In the last two days not only was I able to double my position in Sirius XM, but I was also able to lower my average cost by 16 percent.
Last week I told you that Sirius (the company) may continue to outperform the stock a little while longer. I said this for several reasons. I applauded the company’s earnings and felt that it hit it out of the park. Some cynics questioned the merits of the article on the basis that the stock failed to react favorably to the report. It appears several bears wish to credit the decline of the stock as the result of their already biased views of the equity while discounting the global economic crisis that our country is dealing with. What is remarkable is that in the same breath they will tout how Pandora (P) makes the better investment while failing to realize that it has yet to earn a profit.
Staying the course and understanding the improving fundamentals of the company is the best play for those that are long at the moment. Realizing that the stock’s decline has nothing to do with the fundamentals the company makes for a very restful sleep at night. It remains a challenge to continue to maintain perspective, but it is also equally challenging to discount the macro events and not think that it is weighing on the company’s stock performance. Interestingly, Sirius XM (the company) is performing better than Sirius XM (the stock) in these tough economic environments.
Reasons to be greedy
While bears wish to point to a slowing economy as a reason to stay away from Sirius, the company’s management dispelled that notion by raising guidance. Who else would know about the sales projections from the OEM channel better than Sirius?
During the conference call, not only did Sirius report revenue of $744 million, the company also hit a solid bottom line number of 3 cents per share.
- "With the excellent subscriber performance recorded in the first half of 2011, we are now confident that we will exceed our previously announced 1.4 million net subscriber addition guidance for 2011. Today we are raising our full-year guidance to a projected 1.6 million net subscriber additions," added Karmazin.
- "After a strong first half, we now expect free cash flow in 2011 will approach $400 million, up from our prior guidance of approaching $350 million."
- In 2011, the company continues to expect full-year revenue of approximately $3 billion. Sirius XM's adjusted EBITDA projection remains at approximately $715 million. Full year self-pay churn and conversion rates for 2011 should be broadly similar to those seen in 2010.
Sirius all but assured that it will raise its base subscriber rate as soon as 2012 arrives. Consider that Netflix (NFLX) upon raising its subscription rates for the first time last November, the stock shot up 50%. Not discounting Sirius’ recent decline, one should expect a significant premium from whatever price it is at when the year ends.
Investors also received a glimpse of Sirius 2.0 and the next generation of satellite 2.0. I think the mention of 2.0 during the conference call not only created more excitement for investors, but it also introduced more questions. The company shared that as part of Sirius XM 2.0, it will be able to increase its programming with more channels and do it with less programming expense in 2011 than in 2010. The company continues to work hard on Sirius XM 2.0 and said it will likely be ready to launch in the retail channel by the end of the year.
As investors continue to be in a cycle of fear, one that often leads many not only to spend less but also stay out of the market, “greedy investors” are then afforded an opportunity that is not often presented in many markets; make money in as short a period as possible. Tuesday was the perfect example; as fast as equities dropped on Monday, many not only recovered those losses but added gains. “Greed” in that sense was good and it is what will help stabilize our market and presents some balance to the fear that has become so rampant. Sirius investors’ only fear should be fear itself, when it comes to Sirius XM (the company), be greedy! Be very greedy!
Disclosure: I am long SIRI.