Investing in Sirius XM (NASDAQ:SIRI) is simple.
- Buy the stock.
- Hold the stock.
- Reap the rewards down the road when you sell.
(click image to enlarge)
Since Liberty Media (LMCA) saved the company from the brink of bankruptcy back in 2009 just in the nick of time as the share price briefly touched a whopping 5 cents, Sirius XM has consistently and reliably reached new highs year after year after year and to great percentage gain for investors. The stock is up roughly 5000% since that low. Buy today, hold awhile, sell later for good profit. Simple.
Investors in Sirius XM -- at least those who read the daily headlines -- can easily become caught up in a frenzy of details surrounding such things as subscriber guidance, auto sales, customer churn, ARPU, debt to equity ratios, P/E ratios, and of course, where the stock price is on any given day. Lately, the focus has been on Liberty Media's purchases of shares of Sirius XM in the open market and what tenth of a percent it needs to go to 50% control. Spencer Osborne had an excellent article on this today, which I highly suggest reading here. While these details are great (and very important) to read to keep up on your investment, sometimes it is a good idea to step back a bit and take in everything in one broad stroke.
There's an old saying that may apply here to investors who allow themselves to get caught up in the little bits and pieces and day to day goings on:
"They can't see the forest for the trees."
What exactly does this mean? It means that one can get caught up in the details and miss the overall picture.
I'm as guilty as the next person of getting caught up in all the daily goings on surrounding Sirius XM. Because of this, I've taken some time to reflect on my own expectations as the stock has been stuck in a tight trading range while Liberty Media makes its purchases. In doing so, I've attempted to shut out all the "maybe" and "what if" questions surrounding things like premiums, what Liberty will do after it goes to 50%, and how Liberty will monetize its continued investment in Sirius XM.
If you read the speculation, you may hear individuals pumping the idea that Liberty intends to purchase all of these shares, go to control, and then convert and dump all its shares into the open market, tanking the stock. This is patently absurd, and investors should strike such an idea from their minds.
Additionally, you will hear a lot of talk about a small premium on the Liberty side, or on the Sirius XM side, and who will make out better in the short term. I say, why focus on this? In the long run, 1% or 3% here or there will make little to no difference, and to invest looking for such a premium when you could simply swing trade the stock intra-day for equal or greater gains, is absolute folly. It may be wise to chase a 20% premium, but that's certainly not what is happening here. Investors should simply accept that one side will make out a little bit better than the other, but chasing this premium or spending valuable time on it is likely a waste.
If you read how Liberty will monetize its increasing investment in Sirius XM, you will hear a lot of talk about Reverse Morris Trusts, spin offs and buy backs, and ideas about Liberty forcing a buy back of its newly purchased shares so it can "cash out" of its increased investment.
To me, here's where it gets quite simple, and why investors should take cues from Liberty Media's moves.
Liberty Media has paid up to $2.526 per share on average for shares of Sirius XM. You can clearly see at this website all of its purchase dates, quantities, and average purchase prices. It has been argued, even by those bearish on Sirius XM, that Liberty will not "overpay" for shares. I fully agree with this sentiment. Thus, a simple conclusion can be made.
Liberty will monetize its investment in Sirius XM through continued appreciation in Sirius XM's share price. Period. And that's good for Sirius XM investors.
How much appreciation, and when? That is up for debate, and where the daily speculation comes into play. Might investors be able to buy a bit lower than Liberty's purchases in the short term? Certainly. But over time, and over the longer haul -- such as 6 months, 18 months, or 36 months out -- I believe investors will be well rewarded for their purchases today, whether that purchase price be $2.53, $2.40, or even this year's high of $2.64.
Simply stated, I see current pricing as a tremendous buying opportunity that may be short lived for those seeking to establish a long term position. Likewise, longer term investors in Sirius XM should rest quite comfortably in the knowledge that Liberty Media is buying at or above current prices, and feels the best use of its cash right now is continued investment in Sirius XM.
Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.