Should You Ride The Yo-Yo Or Rise With Liberty?

 |  About: Sirius XM Holdings Inc. (SIRI), Includes: BRK.A, LMCA, T
by: Mike Stallings

Being bullish on Sirius (SIRI) throughout the last few years, I have always felt the company was on the correct track. It has been improving metrics by paying down debt, adding free cash flow, and of course adding new subscribers. It also has been beating expectations on most earnings calls, and seem to finally have started to right the ship that was at one time destined to join the ranks of the H.M.S Titanic.

However, for the past few months, the stock has stayed in what I have called a yo-yo pattern. Other than the drop back in May of 10%+ (not good news for holders), it has maintained slight gains and losses of 5% or so, with a YTD high of $2.40 and a low of $1.82. I have written many times about how you can take advantage of this. Given all the good news we have heard the past 12-24 months, why hasn't the price taken off?

Although still having a bullish stance, I became frustrated and actually placed a limit order on my remaining shares and had them called off (surprisingly) a few weeks ago. I still own 2013 options, but frankly believe there is a better way to have my cake and eat it to. The answer lies with Liberty (LMCA)

Liberty Media Corporation (<a href=

When I wrote an article back at the beginning of the month, Sirius' stock price stood around $2.04 and the price of a share of Liberty was $91.00. In the last few weeks, while Sirius has slogged up and down a few pennies, Liberty has climbed almost 5%. In fact, since the start of this year, (and the talk of the Sirius takeover heated up) it has grown 20%!

So moving to the present day, which is the better investment? The answer is fairly simple. Both. By purchasing Liberty shares, barring a huge change in philosophy by them, you will be reaping the benefits of owning Sirius stock and have a stock that has been growing and with good reason. Before the takeover, remember that Liberty owned 40% of Sirius which has been netting them a nice little profit. Liberty has also been raising it's stake gradually, including a large purchase in May, bringing them to 46.2%.

Although both companies have seen share prices grow at incredible rates, take a look at them since April 2009, right around the time the "bailout" of Sirius occurred:

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As you can see from the first graph, Sirius has had a nice 550% (give or take a few %) growth since April 2009. The stock was in the $0.35 area, and sits today at $2.11. Not a bad Return on Investment if that was your cost basis. However this YTD, the stock is only up about 5% as it has Yo-Yo'd in the $2-$2.20 range for a majority of this year.

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Now check out Liberty from April 2009 when they rescued Sirius from certain death. The stock sat in the $9 to $10 range per share. Since then, it has grown over 900% over the same time period as Sirius! Wow. And it also is up 14% YTD from $83, closing near $95 last Thursday! This also includes a 10% jump since March.

So why is Liberty a better investment? Sirius is and will be part of Liberty (completely) sooner rather than later. There is a reason Mr Malone is increasing his stake (gradually but increasing): Sirius is profitable, has cash (finally) and I believe (though some authors do not) that Liberty is targeting the NOLS that Sirius holds that can bring tax relief.

Let's also not forget, when this is finally finished, there are 24 million subscribers (not all self pay of course) that I am sure Liberty can find a nice partnership to merge them with. There are plenty of companies under their flag that could drive Sirius' potential (as we all have hoped they would do on their own but haven't). Remember that Berkshire (BRK.A) initiated a position in Liberty in December to the tune of 1.7 million shares, AND increased its DirecTV (DTV) stake to 5 times their previous stake (maybe a partnership there?).

In closing I am bullish on both Sirius and Liberty, I just feel Liberty allows you to have the best of both worlds, has a conglomerate of companies under its flag (including Sirius shortly) and reaps the benefits that Sirius does not on its own because it is closing in on officially having 50% of the company. Why not buy the bigger, better boat? Especially with Godzilla, I mean icebergs, out there?

Disclosure: I am long DELL.

Additional disclosure: I am short SPY