When an equity makes a quick run many invested in that equity scour the Internet to try to figure out why. More often than not, if you are in this position, you are already behind the curve. One key to being a successful investor is becoming a savvy investor. Savvy investors do not react, they try to anticipate. We wont always get it right, but if we can begin to understand the news as it is developing rather than reacting to it we all become better investors.
Last week, as I usually do throughout the month, I wrote an article covering the possibility that February auto sales carry a good chance of producing some good news for Sirius XM. The article, Earlry Indicators Of february Auto Sales Bode Well For Sirius XM (NASDAQ:SIRI), was not widely read, but contained the type of information a savvy investor could use to anticipate a run-up in stock price like we saw last Friday. While some investors were trying to figure out what news was driving this move, others knew to look at the early estimates coming from auto analysts as well as some comments by Liberty Media (NASDAQ:LMCA).
The lesson here is that sometimes news that moves an equity is not tied to that equity, but instead to other forces that can impact that equity. Savvy investors seek out ways to find the news of tomorrow today, or at least how potential drivers may impact the stock. We are not always right, but we can be more prepared than the average Joe.
Late last week other analysts joined Edmunds in projecting a good sales rate for February. Edmunds offered up the hint at the beginning of the month, and now, a few days before official numbers come out, a few other analysts have joined up in projecting February to be another month with a SAAR over 14 million.
TrueCar is anticipating auto sales to come in at over 1 million units, and in fact, the number might well approach 1.1 million units. This bullish news was received Friday, confirming the bullish outlook Edmunds offered up at the mid-point of the month.
What all of this points to is positive headlines for the auto sector, and some relief from the bearish guidance of 1.3 million net subscriber additions offered up by Sirius XM in 2012. Sirius XM CEO Mel Karmazin had noted that his initial guidance was conservative, but it seemed ultra conservative given that the company just came off of a 2011 where they delivered about 1.7 million subscribers.
The good news is that we can already see the positives that good auto sales will bring. The bad news is that while these sales are good, there are still underlying reasons why Sirius XM guided the way they did, and the February auto sales are not going to change that yet.
This is where phase 2 of being a savvy investor comes into play. First, enjoy the run. Next, anticipate. The auto news will certainly be well received when the official numbers come out, but at this point it is likely built in. This means the opportunity associated with the February news will likely have a short life. Yes, we could see a move up as retail investors catch up to the news, but those that were in it for the trade will be the ones trying to sell shares to those late to the game.
Further, and as I stated, Sirius XM is sensitive to the mix of manufacturers as it relates to the subscriber picture. As the Asian automakers that felt the impact of last years disaster in Japan regain share, the dynamic that provides subscribers will change. Many of these automakers do not supply subscribers at manufacture or sale, but rather later on in the process after a consumer experiences a three month trial. I would recommend reading up on that in my article titled, Deeper Color On sirius XM's Subscriber Picture. The good/bad news is that partners that supply at production are still strong, while point-of-sale contributors seem to be losing share.
So what does all of this mean? In many ways it is still too early to tell, and I would not expect Sirius XM to change their subscriber outlook just yet. They are still contending with a price increase which has them calling for churn to increase by 10% over 2011. While 10% may not seem like a lot, imagine if they projected a 10% drop in a metric like Free Cash Flow.
In summary, there is news out there that longs can enjoy that must be tempered with the reality that there has not been a substantial shift in the business model, nor anything that will allow this run to continue. Certainly that is not a bad thing. It simply means that Sirius XM can build stronger support at levels above $2.10. Having strong support has never hurt. We are still a few days away from official auto news, but now that we know what to expect, we can all plan our actions accordingly.
Disclosure: I am long SIRI.