Supply and demand. It rules our lives on a day to day basis and is what places different representations of value on different things. Generally, the more supply there is for something, the less it costs, and the less supply there is, the more it costs. Additionally, the more demand there is for something the more it costs, and the less demand there is for something the less it costs.
In knowing these things, we can understand the very basics of valuation, and that translates perfectly into the stock market, and in our case, the valuation of Sirius XM (NASDAQ:SIRI) stock.
With institutions often being called the "smart money" many people look to them to see what they are doing and if these institutions are seeing value in the stocks which they own through purchases or initiations of new positions in that stock. Because of this, I occasionally check the institutional purchases and sales to see if there was a net inflow or outflow of institutional funds at recent pricing.
If there is a net purchase of stock, it can be assumed that the purchases see value in their investment. Their goal is to make money, and thus one can assume that they expect their investments to do that for them.
It is important that one approaches such things as institutional buying and selling while considering both sides and not merely discounting the other. Of course, every quarter there will by purchases and sales, but to only focus on one is doing oneself a disservice.
For Sirius XM this data can be found on the Nasdaq website.
- Total shares bought between 12/31/2011 and 3/31/2012 were 29,689,401
- Total shares sold between 12/31/2011 and 3/31/2012 were 10,662,549
Thus, in the period ending 3/31/2012, Institutional investors bought a net positive of 19,026,852 shares of Sirius XM . Institutions now own 42.52% of Sirius XM's public float of 3.8 billion shares.
While a guess was made by some earlier in the year, that smart money was actually leaving the stock, reality shows otherwise. Smart money did in fact, in the first quarter, have a net purchase of just above 19 million shares.
It's just one more in a string of positives for Sirius XM. With Liberty Media (NASDAQ:LMCA) now dedicating a huge amount of cash to purchasing what will likely end up as 600 million or more shares, as well as the additional 20 million purchased by institutions, it appears that a lot of money is pouring in to Sirius XM. This continues to be confirmed by the large amounts of net positive money flow which Sirius XM has seen since the start of the new year.
It makes me very comfortable to know that my long investment in Sirius XM is supported by the bigger players buying in. It's also supported by the biggest player of all, who just happens to be an insider. Liberty Media. Demand is high, and Liberty doesn't have all the shares they need, yet. While the price of Sirius XM has not moved much from $2.15 in the last several days, I expect it to move up once Liberty's demand is filled, as they will have removed 600 million of the supply from the public float.
Additional disclosure: I am long SIRI June $2 calls.