For the last few months Sirius XM Satellite Radio (SIRI) has been on a steady decline. Many feel that it is due to the uncertainty revolving around the Liberty Media (LMCA) takeover attempts that began in March. However, the 52 week high of $2.41 occurred on April 2 which disputes that idea, since the first actual concrete evidence of a Liberty takeover was reported on March 29.
Last week most of the articles written about Sirius XM were extremely bearish. It is one thing to recognize that we are possibly entering a bear market due to Europe's constant "Doom and Gloom", but to say that a stock is dwindling due to "questionable fundamentals" is begging for a bull attack:
The smart thing to do here would be to sell the stock before it succumbs to more bearish pressure in a market poised to punish anything with questionable fundamentals. For that matter, it seems $1.65 is likely the next target.
I think most analysts will disagree with the fact that Sirius has questionable fundamentals. As a matter of fact, the company had a record breaking first quarter. According to Yahoo Financial, 13 analysts give Sirius a mean target of $2.59, with a high of $3.20:
| Price Target Summary |
|---|
| Mean Target: | 2.59 |
| Median Target: | 2.60 |
| High Target: | 3.20 |
| Low Target: | 2.00 |
| No. of Brokers: | 13 |
The low target of $2.00 was given by the one analyst that rates Sirius as Underperform. However, he doesn't even say to sell. Actually not one professional analyst that I could find says to sell. Most of the analysts here recommend buying it (as of this month), and 4 of the 13 think it is a strong buy. Fundamentally not a lot has changed in the last three months according to this:
Recommendation Trends
| Current Month | Last Month | Two Months Ago | Three Months Ago | |
|---|---|---|---|---|
| Strong Buy | 4 | 4 | 4 | 4 |
| Buy | 5 | 6 | 6 | 6 |
| Hold | 4 | 3 | 3 | 3 |
| Underperform | 1 | 1 | 1 | 1 |
| Sell | 0 | 0 | 0 | 0 |
My favorite thing to do in a situation like this is compare the stock to Apple (AAPL), and other market indicators such as the NASDAQ. A lot of investors have questioned why I do this because even though both companies are tech stocks, they have different products. But for some strange reason Apple and Sirius seem to travel in tandem, and when the pattern changes, you know that something is going on that is not market related. As you can see from the chart, the patterns are extremely alike until the very end where Apple and the NASDAQ both turn up, but Sirius dips back down.
If we zoom in on the chart, and look at the last five days, we see that something happened to Sirius mid day on Thursday, and continued through Friday. Mid day on Thursday the price peaked at $1.95, and then dropped, closing on Friday at $1.86. This suggests to me that there is a lot of trading going on. And those traders keep throwing around the price of $1.65, hoping it will drop, and they can get back in. And it could drop. Any stock can drop, but it can just as easily go up. So I am inclined to pay attention to the pros here, and continue to hold or buy.
Something else I like to check when a stock and/or the market is showing volatility, is the Institutional ownership. What are the big guns doing during this Liberty situation? Again according to Yahoo Finance, they are buying:
Breakdown
| % of Shares Held by All Insider and 5% Owners: | 4% |
| % of Shares Held by Institutional & Mutual Fund Owners: | 50% |
| % of Float Held by Institutional & Mutual Fund Owners: | 53% |
| Number of Institutions Holding Shares: | 442 |
Back on May 11, the percent of the float held by institutions was 42.52. This has come up dramatically to 53%. That is a total of $1.9 billion shares. So who are these big money funds that are buying Sirius? Here are some of the top holders, as of March 30:
Top Institutional Holders
|
| Top Mutual Fund Holders |
|---|
|
So brace yourselves, because it is hard to know what next week will bring. One thing to watch for is CEO Mel Karmazin selling his shares. As part of his estate planning, he let everyone know in February that he would be selling approximately 60 million shares (bonus options) beginning in April. As promised, he sold almost half of those designated shares in April and May. There are still about 35 million of these "charitable" options left.
If you have noticed both sales occurred around the 15th of the month. The first time the shares hit the market, investors gobbled them up as the price fell. However in May, the price fell and has still not fully recovered. So there could be a type of "flash crash" this week if he sells into such a soft market. I say "if" because he has the option to change his mind and stop these sales at any time. If you have Sirius buying on your mind, you are probably salivating at the thought. But if you have a weak heart or stomach, I would not blame you for baling right now. For those who stay though, you are in very good company.
Disclosure: I am long SIRI.
Additional disclosure: If the price goes lower, I may buy more Sirius shares in the next 72 hours.
