Due to the fluctuations of the market, each day we find minor corrections in both directions for many different stocks. I've chosen two different stocks here and two opposing plays based upon their long-term and short-term prospects, and where their share prices are currently headed. One long idea is currently in a slight pull back, and one short idea has rebounded off a low.
Sirius XM (SIRI) Go Long
I am no stranger to Sirius XM Radio. Having held a long core position for a long time, and trading a smaller more speculative portion, I could be considered both a Sirius XM investor and trader. Currently I am quite bullish on this stock. This year has seen over 30% appreciation in Sirius XM's stock price, and it is my feeling that the best is yet to come.
Earlier in the year, the stock jumped on an early announcement of a significant increase of subscribers. Over half a million new subscribers flooded Sirius XM in the fourth quarter of 2011. Management has done a wonderful job of providing conservative guidance moving forward for 2012, guiding an increase of 1.3 million net subscribers. We have seen how swiftly Wall Street can and will punish companies like Pandora (P) that fall short of their expectations, with Pandora losing over 25% of its share price overnight.
I have great comfort with my investment in Sirius XM. And I have faith in management which is more interested in real facts and figures proving themselves over time, than playing a risky game of "shoot the moon" with their estimations, and falling short at the expense of their shareholders.
Beyond this, 2012 offers a modest price increase of Sirius XM that should bolster the bottom line considerably. Sirius XM ended the day at $2.29 on Tuesday, and I believe due to options expiration week, the stock may retrace a bit into the lower end of $2.20's for an excellent buying opportunity. The stock is currently fighting strong resistance at $2.35, and may break through as March progresses, if automobile sales numbers are good to excellent as they have been in January and February. Take this week as an opportunity to get in at the lower end of Sirius XM's current trading range.
Yelp (YELP) Go Short
Yelp is a fresh IPO, and new to the scene. I penned an article at the time of IPO on March 2nd, suggesting it was an excellent short sale candidate at the $26 high. Since then it has dropped like a rock to just under $20 and rebounded back to the $24 range. I don't have faith that this level will hold and I think we'll see a retrace again back towards $20 very soon.
Yelp Inc. , formerly Yelp! Inc., connects people with local businesses. Its users contribute reviews of every type of local business, from restaurants, boutiques and salons to dentists, mechanics and plumbers. Its platform provides local businesses with a range of free and paid services, which help them to engage with consumers at moment when they are deciding where to spend their money. The Company generates revenue from the sale of advertising on its Website to local businesses and national brands. In addition, it enables local businesses and national advertisers to deliver advertising to local audiences through its platform.
I personally do not have faith in Yelp's business model, relying on users to generate content. Yelp has been accused of shady tactics to get businesses to "pay up" and also has recently been accusatory towards Google (GOOG) of doing almost the same thing. This does not give me faith in a company when there is so much recent finger pointing back and forth. Besides the traditional volatility of an IPO, this underlying current tells me to stay away from being long this stock, and to play it down when it peaks.
I feel it is currently peaking again and is an excellent short candidate at present levels. Use put options if you have conviction that the stock will go down and wish to make greater profit. This stock is volatile and will likely move very quickly. In and out is the name of the game here. Because this is a new IPO and a volatile and relatively untested stock, this is certainly not a play for everyone.
Every new trading day there are opportunities in the market to take advantage of. If you are diligent with your research and observation, you can seize these opportunities for profit, in both directions. The above two stocks currently offer these opportunities and are worth your time to look into them.
Disclosure: I am long SIRI June $2 call options.