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  • Sirius XM - A Lot Riding on Next Week's Earnings

    Next Tuesday Sirius XM (NASDAQ:SIRI) will be announcing fourth quarter and annual earnings for 2010 and there is a slight chance that the company will announce a positive year for the first time in a long time. In 2006, SIRI lost 79 cents a share, but this amount has been diminishing ever since. Despite the improving earnings, it was not until the second half of 2008 when the stock price plummeted, for obvious external economic reasons. Of course, since then we have seen a recovery, corresponding with their improving earnings, culminating in the run from $1.00 to $1.79 in the last 5 months.   

    With 135 channels there really is something for every Sirius XM listener, whether it be sports, talk radio, business, comedy, or basically any kind of music you could want to listen to. Their licensing with the major sports leagues and their ability keep huge names on board set them apart from terrestrial radio.

    Recent opinion has suggested that this company is overvalued price wise (link) or knock the company for past wrongs (link).  However, this stock must be taken for what it is, and people need to realize that future earnings will be much better than the last five years. I shall explain this proclamation, but first, a quip. While writing this, listening to my iTouch (NASDAQ:AAPL) on shuffle, Rage Against the Machine offered a very fitting line for this analysis in Guerrilla Radio:

    Was is cast for the mass who burn and toil?
    Or for the vultures who thirst for blood and oil?
    Yes, a spectacle, monopolized.

    It was 2007 when Sirius and XM announced their merger, therein by monopolizing the satellite radio industry. Some argue that they have legitimate competitors, such as Pandora, but in reality Pandora is no threat to the auto subscriber base. Of course there is internet radio, and those like me that swear by their iPod docks, but truth be told, Sirius offers a highly unique product with a bright future.

    Their hold on the market is very similar to Netflix (NASDAQ:NFLX) in that, as stated, once you try you won’t want to let it go and there are few if any bona fide competitors. So the biggest thing is for Sirius to optimize its margins. This does cap the potential market, since there are only so many people driving in the world and you can only charge so much for this product, but they can certainly be profitable for years to come.

    Sirius does boast that their service can be used on a computer, in your home, or on your mobile smart-phone, but we all know that the backbone of their revenue comes from in-car units. They claim to have over 20 million subscribers, and the majority of these units are in vehicles. It is also well known that the company benefits much more from renewed subscriptions, rather than new users, because of the cost of the receiver. But, speaking from experience a new user is very likely to fall into the former category after their initial membership expires.

    With this in mind, consider the following report from the National Automobile Dealers Association, which offered some very positive guidance last weekend. They predict new vehicle sales of just under 13 million for 2011 which would be significantly hirer than last year. They base this on the improving economic conditions, an apparent shortage of used cars, and consumer credit, among other things. They also believe that rising gas prices will encourage consumers to trade in for more fuel efficient vehicles.

    This is good news for SIRI holders, because more new car sales equals more subscriptions. So the question becomes how much will this affect the stock price and what is going to happen to it in the near future. Consider the 1 year chart below.



    You can see that for 3 or 4 months the stock was trading in a tight range in and around $1.00. Actually, looking back, there is probably a tenant formation from May to September which caused the breakout that ultimately resulted in this upward trend. Based on the prior analysis, one should argue that this stock is certainly not overvalued, as investors are paying for future prosperity. Things are looking good at Sirius and there is no reason why Sirius could not be turning a profit for years to come; people having realized this have helped to drive the stock up.



    Disclosure: I am long SIRI.
    Tags: SIRI, AAPL, NFLX
    Feb 11 1:24 AM | Link | Comment!
  • The Best Value Play You’ve Never Heard Of:

    5/21/2010 – Dover Corporation (NYSE:DOV)

     

    Price - $44.45

    52 Week - $30.26 - $55.50

    Trailing EPS – 3.151

    Dividend - $1.04

    P/E – 19.24

    Beta – 1.23

     

    Fear cavalier. Renegade steer clear!

    A tournament, a tournament, a tournament of lies.

    Offer me solutions, offer me alternatives and I decline.

     

    It's the end of the world as we know it.

    It's the end of the world as we know it.

    It's the end of the world as we know it and I feel fine.

     

    R.E.M. front-man Michael Stipe could not have said it better. We are in tumultuous times and many investors have fled the market. From historic oil spills, European sovereign debt defaults, Icelandic volcanic activity, Chinese cleaver attacks, ‘fat-fingers’, and German naked shorts, the world is spiraling out of control and taking the market with it. Major fluctuations have become the norm: down 350 one day, up 100 the next. The Dow saw record setting intraday loses on May 6th, bounced up showing signs of life the next week, and has since confirmed that this life is teetering.

     

    So what does the everyday investor do in this case? Cash out? Well prices are too low to do this right now and this is exemplified by the individual middle aged man who tried to get out on the 6th and in the process lost around $15,000 on Proctor & Gamble because of the incredible timing of his transaction. To this he blames his broker, but in truth it was an anomaly that no one could have predicted. But I digress. It is not the time to leave the market. In fact, most fundamentalists would say it’s the perfect time to get in. But in the process one must avoid risk and capitalize on available guaranteed profits. This is a time when value dividend investing is more useful than ever before.

     

    With this in mind we will dive into one of the safest dividend plays you’ve never heard of: Dover Corp (DOV). It gets mentioned in passing in several articles but never truly examined. It’s safe but sometimes too safe, and certainly not sexy. But right now Dover is priced at $44, $11 below its 52 week high just a month ago on the day they reported an amazing first quarter earnings of 65 cents/share beating estimates by 14 cents. Like any company 2009 was not kind to Dover, but never did they cut dividends (more on this later). EPS for 2008 was at $3.67 and was followed by a $1.99 performance in 2009. But now analysts have an estimated EPS of $2.90 for 2010 and up to $3.71 in 2011. Keeping this in mind, dividends are expected to be raised to 27 cents a share quarterly in 2010 and possibly reach 29 in 2011. That gives a current yield of a meek 2.3% annually.

     

    Here’s the good news. There is almost no chance of this dividend going away. It is a pure ‘buy and hold’ type position. And by “no chance” I mean that this stock has had an increasing annual dividend ever year for 54 years. Let me repeat that, 54 YEARS! No dividend cuts, no dividend suspensions, and a few splits mixed in. How does this company do it, you may be asking? Well Dover falls under the umbrella of industrials but Dover’s personal umbrella is massive. They own over 40 companies, several of which own multiple companies/subsidiaries of their own. These companies make anything from industrial microwaves and refrigerators to beverage can producers to sucker rods (I don’t know what this is either) to diamond drill-hole tools to ATMs to fuel pumps to hydraulic cylinders to garbage truck parts. Dover is practically diversified for you and relatively impervious to small scale industry news. And the role of the people whom run Dover Corp is to simply (probably not as simple as I would think) pick strong companies to acquire and reap the rewards. And given their historical success one can only assume that they are very, very good at it.


    Why would someone want to waste their time with such a low dividend when other seemingly equally safe companies are offering dividends in the range of 6-8%? Well, as mentioned the risk is essentially negligible with Dover. They boast a strong balance sheet; stable long term debt, an increase in treasury shares 2 years ago, reliable revenues, and an increase in inventories, which I am not a fan of but it was not by a scary amount. Another reason why this stock is appealing is its relatively low P/E multiple, currently at 19.24, and the forward is around 14. And the last reason is the discount it can be purchased at right now assuming the world comes to some kind of normalcy in the next couple years. There are only 10 analysts on Bloomberg following Dover and the consensus is a buy. 7 of ten have price targets listed and 6 of those are over $60. As you can see below Dover has been affected by the rollback type loses of the last 2 weeks and perhaps $55 is a bit of a pipedream until the growth prospects  are further confirmed next quarter but $44 is most certainly a steal.



    It should be noted that while not shown above, the 50 day moving average is a good distance from the 100 and the same goes for the 100 to the 200. There to do not appear to be any other blatant technical patterns. The trend line drawn illustrates the anticipation and confirmation of a solid earnings report.

     

    With all of that said I do actually hold a rather large position in this stock and this is of course by no means expected to help it out. Dover’s record date is approaching quickly so we may see a small rise in price followed by a small drop afterwards. And then after that we should see the start of a climb towards $60 with some pitfalls along the way. But say it gets to $60 and you do purchase now, at $44. Even if it takes a year or two, we’re talking 35% capital gains with 2.3% dividends. Reinvest the dividends starting next week and the compounded gains over the next decade will provide a beautiful payoff.  

     




    Disclosure: I do hold a long position in DOV.
    Tags: DOV
    May 23 11:00 PM | Link | Comment!
  • Is RightNOW Finally The Time?

    RightNow Technologies Inc

    Price - $15.50                                      52 Week - $8.60 - $19.99

    2009 EPS - $0.16                                Trailing EPS – $0.12

    P/E – 97.48                                         Market Cap - 495.80 Mil

     

     

    For those of you who own shares of RightNow Technologies Inc RNOW, tomorrow will hopefully signal the sign of good things to come, for tomorrow is analyst day. Several had released reports just after the market closed on Wednesday (5/19) and have been positive. From the few I read, buy ratings were maintained and one price target was set at $20, interesting given that they have not seen the sunny side of $20 since 2007, but growth prospects do seem promising.

     

    Back in the day, when the world was peaceful, stabilizing, and not being attacked with cleavers or spewing oil, there was a very hot topic in the equities market known as cloud computing. Just saying it reminds one of simpler times; anyway, there was a multitude of companies that were thought to comprise this “sector for the next decade” with behemoths like IMB, Google, and Oracle taking a somewhat backseat to uber bulls Salesforce.com and VMWare. Around mid January I began to watch five of these very closely and had been until the world fell apart. But in this short period of time we’ve seen remarkable gains, some of which have obviously been pared in the last week as the techs took a major hit. These stocks were the aforementioned Salesforce.com CRM (which I did eventually obtain a long position in) and VMWare VMW, and Netsuite N, Terremark TMRK, and RightNow Technologies RNOW. Below you’ll see the price on Jan 25th, the close on May 19th, the percent change, and the high since then.

     

                            1/25                 5/19                 % Change        High

    CRM -             $64.13             $81.60             27.2%              $88.40

    VMW -            $42.00             $58.82             40.4%              $62.84

    N -                   $15.89             $14.67             -7.6%               $16.25

    TMRK -          $8.25               $7.65               -7.2%               $8.57

    RNOW -         $16.95             $15.50             -8.6%               $19.99

     

    Clearly the best of breads have been just that, but is it time for one of these smaller stocks to take off? The three were heavily affected by poor earnings reports over the last 2 quarters leading to massive losses, Netsuite and Terremark slightly more so than RightNow. With that being said, CRM reports on the morning of Thursday May 20th and could set the stage for the industry for the next few months.

     

    So what does analyst day mean to RNOW and how sustainable are their growth prospects. RightNow reported on April 28th and the majority of new price targets were set the following day, 6 of which are at $20 or above. Again, the earnings did not meet expectations and as of right now trailing EPS ($0.12) is below that of the 2009 EPS (0.16). The following graph illustrates loses that have been suffered since.
                 

    Regardless, RightNow has performed rather strongly over the past 3 weeks never falling below the $15 mark and the above trend line may indicate some support. With several analysts reiterating their buy positions or perhaps even upgrading to a buy rating this stock is step to pop even amongst the world’s volatility.


                  

    This graph shows the latest drop in the 15 moving average which began the day before the P&G debacle. The 15 day has crossed beneath the 65 day and if recent history is to repeat itself, it will not be long before another upwards swing occurs.

     

    Fundamentally, RightNow is not the most appealing in its sector, but tech stocks come with inherent risk. They claim to difference themselves from the rest by offering CX: Customer Experience rather than CRM: Customer Relationship Management. They focus on making the website experience better while increasing customer loyalty among other things. Their clients include John Deere, Cisco Systems, and the US Social Security Administration, which of course bodes well for there chances of making it through the next year alive. Analysts agree, with 8 buys, 9 holds, and only 1 sell; though this is mainly a reflection of the industry as a whole. With that being said, there is currently an average target price in the $19.25 range with EPS growth through 2011 estimated to maintain steady growth inline with the industry. Additionally, revenue has risen steadily for the past several years and is likewise expect to continue. With this in mind we can expect to see a drop in the P/E multiple which is currently around 97. Given this data and all that preceded it I personally think that RNOW is a smart wager for the coming quarter to a year as long as the coming earnings come closer to estimates.

     

    Any comments/criticisms would be greatly appreciated.

     



    Disclosure: No Positions
    May 19 11:08 PM | Link | Comment!
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