Merger Speculation Hurting Sirius Stock, Long Term Outlook Still Good

Analyst downgrades sent Sirius Satellite Radio (SIRI) shares into a downward spiral since April 20th, 2007. Both USB and Stanford analysts downgraded SIRI shares from “buy” to “neutral”, and Wall street took quick notice. The SIRI-XM Satellite Radio (XMSR) Merger speculation causes SIRI shares to degrade in value as time passes. Investors become impatient and dump off their shares, causing a sell-off when the merger details have changed very little.

I’m Down 18% in SIRI stake

I opened half my long position in Sirius Satellite Radio Inc. at $3.20 when Sirius stock appeared to have bottomed. I made a mistake in judgement because I didn’t account for speculative merger talks in my preliminary analysis. Now, I’m down 18% on this stock, and may have to sell off my position if it reaches my 25% stop-loss limit.

Even when your analysis looks 100% correct, short term movements can disrupt your objective thinking. However, a 25% stop-loss limit helps to automate decisions and ease the pain.

Satellite Radio Has No Match in the Long Run

Even though increasing competition from HD Radio and Mp3/mobile device music has raised the stakes in the media industry, Sirius Satellite Radio offers a vast array of unlimited quality programming (check out Orbicast’s screenshot of the new Sirius channel lineup) that has no match. New movements such as satellite radio take time to propagate across industries. The industry is less than six years old, and growth opportunities lie ahead of both SIRI and XMSR. If standing alone, this will only delay the growth process.

Also, Mitsubishi and Mercedes-Benz signed contracts with Sirius radio to add satellite radio programming as a standard feature in over 80% of their models. Foreign automobile manufacturers embrace satellite radio aggressively, signaling an increase in demand from their respective customer bases. This spells good news for long Sirius investors.

If the merger goes through, expect high trading volumes for shares of Sirius satellite radio.

SIRI 1-yr chart

Comments

[AlanBrochstein]

You mention no competitive threats to Satellite Radio, but why can't we ultimately expect an IP delivery of high-quality programming? Many cities are creating "city-wide" Wi-fi zones, and it seems likely that ultimately technology will permit the internet to reach the automobile. I am no technical expert, but it would seem like many of the challenges (signal lock and data speed come to mind) will be solved. There would certainly be advantages to content providers. Thanks for your thoughts.

Alan

[nmoore]

I travel by car and Sat radio is the best for the road. There's no changing channels between cities, no static when you're on the road and you can find anything you want to listen to. Even though Wi-Fi is great for in-city travel, out on the interstate i think Sirius is the best! I think it will be a long time before the internet catches up, although I'd love to have internet radio in my car.