Too many investors get too excited about certain stocks, jumping in without comparing them to other possibilities. This is equally true for great investments and terrible ones. That's why I'm about to play devil's advocate.
In this series, I try to help investors see greater possibilities by highlighting a few other companies to consider before you take the plunge into a given stock.
Today's stock is Sirius XM Radio (Nasdaq: SIRI ) . Coming off of its third straight quarter of positive GAAP net income (that's right, positive net income with no adjustments), Sirius has got bulls excited. Let's consider some other possibilities.
Two fellow satellite providers
Like Sirius does for radio, DirectTV (Nasdaq: DTV ) provides television content via satellites. Sirius and DirecTV have similar numbers of subscribers -- but $23 billion in sales for DirecTV versus less than $3 billion for Sirius. Why? Because people are more willing to pay big sums for monthly television service than monthly radio service. DirecTV is quite profitable, both on an earnings and free cash flow basis, but it trades at a premium multiple. Its lower-end competitor DISH Network (Nasdaq: DISH ) trades more cheaply, but its balance sheet is more leveraged than DirecTV's. It also lost subs last quarter versus DirecTV's sub gains.
A fellow music stock
Just as terrestrial players fear becoming obsolete at the hands of Sirius, Sirius fears the threats of Internet radio and handheld music devices. Apple's (Nasdaq: AAPL ) iPods and iPhones combine both threats. Sure, you can also stream Sirius on the Apple devices, but it has to compete with the owner's MP3 collection, Pandora, RealNetworks' (Nasdaq: RNWK ) Rhapsody, and on and on.
Apple plays in many fields -- it's a computer stock, a telecom stock, a whatever-an-iPad-is stock, and yes, a music stock. Its iTunes store and popular hardware make it a real player in the space.
Two fellow beaten-down stocks
Because of its massive share count, Sirius XM still has a market cap of $4 billion despite its $1 share price. Another stock in Sirius's shoes is YRC Worldwide (Nasdaq: YRCW ) . It has close to $5 billion in trailing sales, but a market cap of less than $400 million and a share price of less than $0.40. Like Sirius, this trucking magnate fell from great heights (more than 95%) due to towering debt and profitability concerns. It's fighting to remain liquid, but its earnings announcement last week didn't do much to quell the market -- shares dropped 20% on the news. A reverse split is a consideration.
E*TRADE's (Nasdaq: ETFC ) already been down that road. Its 1:10 reverse split back in June has shares trading in the mid-teens rather than under $2 a share. Last month, I compared E*TRADE and Sirius XM to see which was the better buy (click here to read that article). By the numbers, E*TRADE was the victor largely due to the proven discount brokerage business model that is hiding underneath its subprime excesses. However, readers voted more than 2:1 that E*TRADE was in fact the better buy.
The final reminder
As you decide between Sirius XM and these other alternatives (or none of the above), remember that I don't intend these companies as recommendations, nor as a criticism of Sirius XM. It's simply always a good idea to analyze many semi-related companies before you make any buy decision. If any of these strike your fancy, you can start your research by checking out what our CAPS community thinks. Good luck!
For more stock alternatives, I did the same exercise for FedEx.
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