The Big Money Says to Buy Sirius XM

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: Sirius XM Radio (Nasdaq: SIRI  ) . Are institutions bullish or bearish when it comes to the satellite radio pioneer?

Foolish facts

Metric

Sirius XM Radio

Motley Fool CAPS stars (out of 5) **
Total ratings 4,683
Percent bulls 80.2%
Percent bears 19.8%
Bullish pitches 995 out of 1,200
Highest rated peers Comcast, Dish Network, DirecTV

Data current as of Oct. 24.

Fools rating Sirius in Motley Fool CAPS give the stock only two of five stars, an indication they don't think of much of its chances to beat the market from here.

"Seriously, [what's with] all the recent thumbs up? Between $17 in debt for every dollar of equity, paltry earnings, and a good chance that smartphones will soon provide competition ... I don't see who would want this business without somehow retiring that debt," wrote All-Star investor wwheeling last week.

I'm less concerned about Sirius' debt than I used to be. Management's had no trouble refinancing hundreds of millions in obligations, and the stock trades for a historically reasonable 2.98 times revenue when compared to enterprise value.

Institutional ownership history

Top Owners

Latest*

2009*

2008*

2007*

MFC Global Investment

147,589,685

162,675,859

56,106,368

61,045

The Vanguard Group

141,292,404

153,951,809

85,525,638

38,606,558

BlackRock

121,807,972

59,417,116

3,317,588

5,400,188

Apollo Management

91,857,857

91,857,857

91,857,857

91,857,857

State Street Global Advisors

37,468,206

12,697,880

30,084,307

25,883,808

TOP 25 TOTAL

834,749,482

559,984,593

562,531,994

206,775,099

Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.

Forget what I said about the smart money not being smart. Big-money institutions have loaded up on shares of Sirius over the past three years, with buying accelerating in the last year. Many have since more than doubled their money.

Competitor and peer checkup

Company

Institutional Ownership

Insider Ownership

Apple (Nasdaq: AAPL  ) 66.47% 0.72%
CBS (NYSE: CBS  ) 84.67% 0.37%
Entravision Communications (NYSE: EVC  ) 42.97% 21.70%
Motorola (NYSE: MOT  ) 65.10% 0.19%
Sirius XM Radio 18.87% 0.52%
Time Warner (NYSE: TWX  ) 81.00% 0.06%

Source: Capital IQ. Data current as of Oct. 20.

Sirius XM fits the industry average when it comes to insider ownership. And CEO Mel Karmazin still holds 8.8 million shares.

But it's institutional ownership where this stock story gets most interesting. The Big Money may be buying, but with less than 20% of the outstanding shares, they've yet to fully commit to Sirius XM Radio. The stock should rally nicely when they do. As such, I'm calling for it to outperform in my CAPS portfolio.

Now it's your turn to weigh in. Do you think now's the time to buy Sirius XM? Let the debate begin in the comments box below. You can also recommended other stocks for Tim to evaluate by sending him an email, or replying to him on Twitter.

For further Foolishness featuring Sirius XM Radio:

Interested in more info on Sirius XM Radio? Add it to your watchlist here by clicking here.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. The Motley Fool owns shares of Apple and Google and is also on Twitter as @TheMotleyFool. Its disclosure policy is smarter than the average bear.


Read/Post Comments (19) | Recommend This Article (47)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 25, 2010, at 11:51 AM, TheeShawn wrote:

    It's a better time to buy now than three years from now.

    Even when Stern leaves, those of us who pay for SiriusXM in our cars love the convenience and will continue to pay for what they provide imo.

    If you're looking to make a killing in the next 6 months then no, but if you really want a long term play where making a nice return over the next few years is your goal, imo buy a little bit.

  • Report this Comment On October 25, 2010, at 12:05 PM, jm31563 wrote:

    I first bought into SiriusXM at $1.05 per share only a few months ago. It's in the 1,30's now and most likely will continue to excel to $2-3 by end of 2011. I like to buy and hold, and will do so with SiriusXM. I feel good about the future of this company despite what current naysayers say about its debt. I will be buying more shares in the near future, no doubt.

  • Report this Comment On October 25, 2010, at 12:45 PM, Narcoticsrus wrote:

    I have been following Sirius since it was at the 39 cents level. Back then, I had 4750 shares. Then naysayers broke out and yelled "bankruptcy! Theyre going to file bankruptcy soon!", and I sold, ALL of my shares. That was being a pure idiot, but many fall into this mindset. Just like a bunch of sheep. I remember something Warren Buffet said. "Be greedy when others are fearful, and fearful when others are greedy". People are so skiddish about Sirius right now, and I think it's time to invest! I now have around 2000 shares. I WISH i had my original holding, and kick myself frequently. There's too many positives like...S&P credit rating upgrade, Moodys credit rating upgrade, higher subscribers and more by the minute, the introduction of XM Snap!, a very simple automotive plug in to bring Sirius to your car with ease, and much more. Anybody who doesn't buy this stock, which today is at 1.35, is a Fool, and I don't mean in a Motley Fool kind of sense. Now is the time to BUY BUY BUY...

  • Report this Comment On October 25, 2010, at 1:12 PM, tjtoretire wrote:

    This is one of the few companies left with great upside potential to explode from the ridiculous lows such Bank of America and Ford did. Without question now is the time to BUY Sirius. This company is making a profit and retiring debt backed by a product in high demand. It is adding media that is appealing to younger listeners to add to the already 20M+ subscribers. The easy to use recently released SNAP portable tuner makes use even more convenient. The future for added features such as navigation and continued connectivity with iphones and other devices are either here or soon to be added. The CEO is forward thinking and promises great reward to shareholders. I started tracking at $.47 and its now at $1.35 on its way to $5. Profitable earnings will be announced next week most likely increasing share value to $1.50 and beyond.

  • Report this Comment On October 25, 2010, at 1:39 PM, ThongLover854 wrote:

    Sirius is all about content...and i truly believe they have just scratched the surface. Although music continues to improve with new adds like the Pearl Jam station and the older Elvis, Sinatra, Grateful Dead and Margaritaville channels, my belief is talk and television content is the way to go.

    I love music...i listen to lots of music, but ab out half the time i listen to music, it's on my iPhone plugged into my dashboard. When i listen to Sirius, it's probably 80% talk. When i say talk, i mean NFL Radio, Howard Stern, CNBC, CNN, Opie & Anthony and so on...

    Imagine Sirius continuing this niche channel line-up...how about Comedy Channel (Colbert Report, Daily Show, etc)...how about an MTV Channel...or other channels pushed towards teens and college kids. How about a soap opera channel...how about a game show channel?

    Really, the options are endless. And there is also more opportunity for video in the future as well. I'm going out on a limb to say that it's a give that out of 13-15 million new autos every year, Sirius is going to get at least 2 million subs a year. That's going to put this company at 30 million subs in five years easily.

    With price increases, Sirius 2.0 expanded service and additional channels, there is nothing stopping this service from being the in-car AND home AND phone audio service that everyone talks about and you feel left out if you don't have. It's just like the infancy of cable tv...the masses are about to accept satellite radio even more than they do now. If you believe in SIRI, it's going to make you lots of money...

    $2.9 billion in revenue this year...$6 billion in five years...mark my words...

    Long SIRI...

  • Report this Comment On October 25, 2010, at 1:48 PM, ThongLover854 wrote:

    P.S: All info i see shows SIRI institutional holdings at 24%+...you may have more recent information, but i NASDAQ shows 24% institutional, not 18%...?

  • Report this Comment On October 25, 2010, at 1:52 PM, rouben45 wrote:

    I agree with all of the above. I bought Siri at 0.70 dollars and Ford at $ 1.95. None of these stocks have disappointed me. Had I listened to naysayers I would have sold both stocks long time ago. I am confident of both companies future which are interlinked. I believe SIRI will add 1.5-2.0 Million new subscribers in 2011, with or without Howard Stern. I don't like to make predictions, but from what I see, there is lot of tailwind for SIRI which may push the stock above $5.50 by YE 2011. My recommendation is a Strong Buy with 18 months horizon. Thank you for reading these lines. Whatever you are trading, You all have a safe and profitable day. Rouben

  • Report this Comment On October 25, 2010, at 2:27 PM, snippysmith wrote:

    Buy, buy, buy!!!!! I bought 60,000 shares @ around a $1.00 & never looked back. It's a long term hold with the potential for huge short term upside. All positive news, unloading of debt. with or without Stern SIRI is going to the moon!

  • Report this Comment On October 25, 2010, at 3:16 PM, bridgesafe wrote:

    I belive siri has turned into a long term investment (2-3 yrs) up until recently I thought it was a traders stock, if we're correct it could be a buy at higher prices 2 years from now, I'm adding a few shares each month for the last 4 months and holding rather than trading

  • Report this Comment On October 25, 2010, at 5:26 PM, SkippyJohnJones wrote:

    I don't understand the premise of this article. I would see low institutional ownership as a NEGATIVE, rather than assume that the big guys will continue to buy in. This isn't an under the radar niche company that falls below detection of the fund managers. It's not as though they will suddenly "discover" this company and buy a 50% share.

    I'm not suggesting that the company will fold, and I hope they don't (love the product). However, the forward P/E is 67.5, and cash flow is negative. Growth is pegged to new auto sales - hardly an explosive opportunity, and new types of competition are always around the corner. As long as the competition is free, SIRI will struggle with pricing power.

    I held on through the dark days of sub $0.10 pricing and finally pulled the trigger and sold at $1.39. If it gets closer to $4-5, I'd jump back in before the mutual funds with minimum price thresholds can buy. Of course, this would mean missing out on a double or triple along the way. But if I felt there was much of a chance, I would have never sold to begin with.

  • Report this Comment On October 25, 2010, at 7:24 PM, 702nitro wrote:

    [As long as the competition is free, SIRI will struggle with pricing power.]

    For how long will these companies offer their "free service"? Remember NetZero, that was free for a while but they didn't stick around for long. Royalties are going to increase, it's inevitable. The same for Data Access charges for cell phones. If everyone started streaming online music on their cells, ATT, Verizon, etc would change their data plan rates in a heart beat, and I don't mean a price reduction.

    Haters keep saying "Pandora is free,etc.."

    but will they be willing to pay$10 for the service in the future plus $5-$20 extra for data allowance. At that point Sirius seems to be a bargain deal.

    What Sirius needs to do is strike a balance between price that makes it attractive for "All" consumers and make the Sirius profitable in the long run. Also Sirius needs to drop these additional charges for packages.

    Just charge the customer the monthly fee, and include with that Sirius for the car, on the smart phone, internet streaming, and an audio device for home. That should cover the needs for one customer. If they want to add another Sirius receiver to another car, then charge maybe another $5 for that a month.

  • Report this Comment On October 25, 2010, at 7:27 PM, doubting wrote:

    I raised the issue of siri valuation at least a year ago. On a fully diluted basis, the company is valued today at about $1.35 x 6.5B shares + $3B debt = $11.775B. If we build in NOL benefits and just 18 month potential of the company, siri's fair value conservatively should be at least $20B+. This means that the stock should be at a minimum $3 by the end of 2011 or much sooner. I believe that by the end of 2012, siri's fair value will be about $5 a share or more. There is a dozen reasons supporting such reasoning from 2011 and 2013 debt repayment to final satellite launch late 2011 followed by 5-6 years of negligible capex expenses to customer base growth by at least 1.5M a year and most likely by 2M+ in improved economy to shares buy back and smaller debt interest to tapping into new markets to modest fee raising in mid 2011, etc. Most importantly, the market will finally realize the huge potential of this company in the years to come. I expect this to happen sometime in 2011, early 2012. Buying siri stock now is a sure bet for longs to gain incremental profits in the next six to sixty months. It will be just a matter of time and patience. Those who have both stand to make a lot of money.

  • Report this Comment On October 25, 2010, at 7:56 PM, CheetahPilot wrote:

    I've been involved with SIR for about 10 years. Unfortunately forgot to sell my 10,500 shares when it reached $9.00 5 years ago. When bankrupcy loomed a year and a half ago I said what the hell and bought another 15k shares at .10 a share. Now it's on the way up. Am planning to sell it off when it hits $3.00. I'm retired and can feel the fun already.

  • Report this Comment On October 26, 2010, at 8:36 AM, TMFMileHigh wrote:

    Thanks for the comments everyone. Chiming in here and there, where appropriate.

    >>Haters keep saying "Pandora is free,etc.."

    I don't think it's an issue of haters or lovers of Sirius XM, @702nitro. Pandora offers a compelling service that isn't as pervasive because it's broadcast over the web. You're right to raise the issue of royalties, but I don't think they'll kill Pandora, which has become quite clever with advertising.

    >>I don't understand the premise of this article. I would see low institutional ownership as a NEGATIVE, rather than assume that the big guys will continue to buy in. This isn't an under the radar niche company that falls below detection of the fund managers. It's not as though they will suddenly "discover" this company and buy a 50% share.

    I'm not arguing that Sirius is undiscovered, @SkippyJohnJones, but that higher institutional ownership is inevitable as the growth story gets stable. There's also the very real chance the stock gets added to an important index, which in turn would require index fund managers to buy in.

    >>P.S: All info i see shows SIRI institutional holdings at 24%+...you may have more recent information, but i NASDAQ shows 24% institutional, not 18%...?

    The data I have is from Capital IQ, @ThongLover854. According their database, institutions own 18.91% of the stock, hedge funds 5.43%, corporations 2.41%, insiders 0.52%, and the public 72.72%.

    Finally, I should mention that I stand by the story that preceded this one:

    http://www.fool.com/investing/general/2010/10/14/why-this-is...

    I'm much more bullish on Sirius XM today than I've been in a while, but I'd still like to see some insider commitment before spending real money to own shares. CAPS is as far as I'll go -- for now.

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On October 26, 2010, at 9:39 AM, cantbefoolish wrote:

    Wow Tim, last week you say the stock is not a good buy, based on lack of insider buying. Now you say it should go up, based on institutional buying. You're all over the road, buddy. Not that I would expect anything else from a Fool writer. But that gives more credibility to what I said about the possibility of short and cover, after your last piece.

  • Report this Comment On October 26, 2010, at 11:42 AM, SkippyJohnJones wrote:

    @702 Nitro, Pandora is free today. It is also profitable today. So is traditional terrestrial radio. So are countless web-based services that are less well known. If Pandora is cash flow positive and profitable, I sure wouldn't buy SIRI on the assumption that Pandora will soon be forced into a subscription model.

    Even if Pandora was bleeding cash, the company would be a thorn in the side of SIRI in much the same way that Android is annoying to Apple. Apple is able to overcome this "competition with free" through vertical integration and proprietary software/hardware/content. I hope that SIRI is able to do the same, but I'm not putting my money on the line in support of that hope.

    But my point wasn't to talk about Pandora. My point is that technology is evolving rapidly. We don't know what the next big thing will be. For example, with recent advances in mobile connectivity, web streaming could be put directly into the in-dash radio. This would allow for all but SIRI's uniquely contracted material to be distributed for free by an alternative provider with much lower overhead. The sports programming is all available free or via subscriptions with the individual leagues. Heck, even the web version of the SIRI subscription could be streamed for much less than the current full version.

    SIRI doesn't make any money today, just as it never has in the past. Not in a year, not in a quarter. I agree that the company is finally looking to overcome its initial capital outlays, but it has a long way to go.

  • Report this Comment On October 26, 2010, at 4:01 PM, ikkyu2 wrote:

    Saying that you're less concerned about Sirius' debt than you used to be is sort of disingenuous. I would put it this way: I used to be concerned that Sirius' debt would ram the company's earnings into the ground and blast it out of business definitively by a huge margin. Now I'm just concerned that Sirius' high debt load will put it out of business.

  • Report this Comment On October 26, 2010, at 7:49 PM, 702nitro wrote:

    [For example, with recent advances in mobile connectivity, web streaming could be put directly into the in-dash radio. This would allow for all but SIRI's uniquely contracted material to be distributed for free by an alternative provider with much lower overhead.]

    But what will that connectivity costs? $5 or $10 month? Perhaps $15/month. Then $5 for content? Or offer the service for free and have the business model based on advertising? So consumers are going to walk away from Sirius just so they can walk away with $5 more in their pocket in exchange for some disruptive advertisement? Terrestrial ratings are down and thats offers a clue that people are sick and tired of commercials. I for one am one of those people. Give me one business that can thrive and expand that focuses on "free" as their core business model. Apple could give their computers for free but they don't. Direct-TV could offer their service for free if they wanted but don't.

    Terrestrial radio provides music to listeners for free but comes at a cost. (Did I just use free and cost in the same sentence?)

    Consumers are looking for more content, control, and customization which will be addressed with the release of Sirius XM 2.0 in 2011. Sirius already has a foot in the OEM channel and will continue to further penetrate the market by having Sirius built into the cars. In 5 to 7 years, as the cycle of buying and selling, and disposing cars takes place, there will be a point where over 40% of cars on the road will be equipped with the technology.

    So what if? What if a distruptive technology enters Sirius's market? First Sirius already has a headstart. Second, the other company would be at a disadvantage because it would be at the mercy of the consumer to make the final decision of going out to purchase and install to adapt that new technology to their automobile.

  • Report this Comment On October 28, 2010, at 11:34 PM, webjawns wrote:

    I'm am SO tired of hearing people claim that Pandora is a serious threat to Sirius. Pandora offers a unique listening experience to users who want to listen to MUSIC, but past that they have nothing else. Further, as long as they rely on internet service and not satellite, they won't have the same reach as Sirius.

    Sirius also offers online streaming and mobile/smartphone applications, so they can easily compete in that area, despite the fact that it is not free. While Pandora technically isn't "free," they do have a free version, which Sirius does not currently have; however, Sirius is now delving into the TV market by offering backseat TV subscriptions to kids channels (Nickelodeon was one of the channels).

    I wouldn't be surprised if Sirius found its way onto your TV, or made a deal with one of the big cable providers. I'm banking on SIRI long. Great service, and so far their new marketing & business strategies are working well.

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