By now, you've probably come across the popular game in which three celebrities are named. That's where the fun starts. You must single one out for a one-night stand. Another will be one that you wouldn't mind marrying. The third? Unfortunately, you have to kill that one.
The game was a running gag in last week's episode of 30 Rock. It has also been an occasional feature on morning radio shows like Howard Stern's. Several websites also offer online version of the childish game. The language of the three choices -- particularly the fling option -- can get pretty saucy out there.
This is a family-friendly site, so I'm going with "date" for that category. This is also an investing site, so I'm replacing celebrities with stocks. In honor of Valentine's Day, I'll be exploring this game with three related companies every day of the week.
Let's get started.
Sirius, Apple, and XM
I decided to kick things off by taking a closer look at three stocks that are reshaping the way we listen to music. Apple (Nasdaq: AAPL ) is revolutionizing digital media through its iPod. XM (Nasdaq: XMSR ) and Sirius (Nasdaq: SIRI ) are winning over terrestrial radio listeners with their satellite radio programming.
Which one would you date for some near-term gains? Which one would you marry as a long-term investment? Which one would you cross off your list, and possibly short?
I've made my choices. Let's see if you agree.
This wasn't an easy decision. Compared to XM, Sirius has fewer subscribers, a heavier market cap, and posted steeper losses. That would be enough to send it off to the firing line, but I couldn't recommend XM as a near-term trade in clear conscience. Since bottoming out this past summer, XM's shares have soared 40% higher. Sirius is currently trading near its 52-week low.
The ticker-tape disparity comes despite Sirius landing more net new subscribers than XM for five consecutive quarters. Sirius is the one with the momentum. It landed 2.7 million subscribers last year, a million more than XM was able to acquire. At this rate, Sirius will lead the market by the end of next year.
No, it's never as easy as that. However, save for coming up short on the year-end subscriber head count, the news out of the Sirius camp has been mostly positive. And speaking of positive, it did just complete its first quarter of positive free cash flow. It showcased video content -- for rear-seat monitors in cars -- during January's CES show, and that's another catalyst for near-term gains if it proves popular.
How huge is the iPod? The portable media player has only been around for a little more than five years, yet Apple has already sold 90 million of them. XM and Sirius combine for just 13.6 million subscribers in a slightly shorter commercial lifespan. Apple has also sold more than 2 billion digital downloads.
The key here is that Apple is profitable, and a growing yet diversified juggernaut with every single i-introduction. The iPhone and iTV will make Apple a force in wireless phone and video convergence.
Apple trades at 26 times this year's earnings and 22 times next year's projected profitability. If that seems reasonable, you'll be tickled to know that Apple has topped Wall Street's estimates for 16 straight quarters.
Isn't it impressive when I can sing Apple's praises while waiting until the fourth paragraph to even mention the company's flagship computing business? That's just how well things at Apple are going these days. And for the record, those "I'm a PC" ads that rip into Microsoft (Nasdaq: MSFT ) with subtle yet venomous force do rock.
Issuing a sell recommendation isn't easy. It was a tough call back in November when we booted XM out of the Rule Breakers newsletter. So far, it has proven to be the right move. The stock has tanked nearly 10% since then, despite the buoyant market around it.
XM hasn't helped its own cause. It has gotten into a legal tussle with the music industry. It continues to lose overall market share despite having a larger share of automobile-industry factory installations. There is also the fading dream of a merger with Sirius. Speculation over a fiscal combination sent XM's stock soaring late last year, but now even the head of the FCC has dashed those hopes. Even if Sirius and XM were to agree on buyout terms, the FCC would likely kill it.
XM, and to a lesser extent Sirius, have been struggling at the retail level. That finds XM talking up its automaker deals, but way too many people are buying XM-equipped cars and not paying up for satellite service once their trial subscription runs out. That will only get worse, now that more car manufacturers are putting iPod jacks in their cars and the early adopters with the lengthy commutes to justify the subscriptions have signed up.
XM has struck many intriguing deals over the years. Unfortunately, beaming into Starbucks (Nasdaq: SBUX ) coffeehouses, setting up online radio stations with Time Warner's (NYSE: TWX ) AOL, and launching a downloading service through Napster (Nasdaq: NAPS ) haven't created material transactions on the income statement.
Sorry, XM. I relish you as a subscriber, but some stock had to get knocked off.
XM was a Rule Breakers newsletter selection in 2005 but was bumped off at a steep loss 13 months later.
Longtime Fool contributor Rick Munarriz does not own shares in any of the companies mentioned in this story, and he recognizes that nearly all of the 50 states ban marriage between a man and a stock. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.