He began by suggesting that Ford (NYSE: F ) may be the better play here given satellite radio's soft subscriber growth rates, which mirror what's happening in the automotive market. I don't have a beef with Ford. I'm a Ford shareholder. I drive a Ford Flex. However, I think assuming that Sirius XM is simply a proxy for the automotive market isn't exactly fair. Let's go over a few reasons that Sirius XM may be the better investment in 2014.
1. Ford only profits on the sale of new cars.
This is the point I made on CNBC yesterday, arguing that Ford may make money on new cars, but Sirius XM also stands to benefit when those new cars with factory-installed receivers are resold. Sirius XM is counting on the used-car market to be a big driver of subscriber growth in the coming years. It's found money, since there isn't the capital requirement of a receiver.
Ford, on the other hand, doesn't cash in from a resale outside of its service centers if the owner chooses to maintain a vehicle through Ford.
2. Sirius XM doesn't have billions in unfunded pension liabilities.
This is a low blow, but it needs to be said. Ford is doing a great job in narrowing its pension plan obligations, but it's one thing that's been holding the stock back. Sirius XM naturally doesn't have earlier generations of retirees to provide for financially.
Instead of spending excess money on paying down pension liabilities, Sirius XM has spent $1.6 billion this year on buying back its own stock.
3. Sirius XM has an easier path to increase revenue per customer.
Car prices do seem to inch higher over the years, but Sirius XM faces less resistance in milking more money out of its subscribers. No one flinched when Sirius XM increased its rates last year even though programming and content costs were declining, and customers are unlikely to leave when Sirius XM kicks in a smaller monthly rate increase next month.
Average revenue per user has increased from $11.66 during the third quarter of 2011 to $12.29 two years later. This should only continue to increase as Sirius XM expands its offerings after acquiring Agero's connective vehicles business and ramping up its digital offerings. Ford's increases are dictated by what the competition is doing, but Sirius XM is free to test its own elasticity.
4. What will sting Ford's bottom line in 2014 will be good for Sirius XM.
Shares of Ford took a hit earlier this month when it hosed down its outlook, but a lot of the factors that will weigh on the car giant's bottom line either don't apply to Sirius XM or could be beneficial. Weakness in Europe and currency devaluations in Latin America are no skin off Sirius XM's back. Ford's operating margins contracting as it introduces nearly two dozen new or refreshed models will sting the company's bottom line, but will excite buyers who will snap up the new rides with Sirius receivers.
5. Sirius XM will be growing faster in 2014.
Analysts see Ford growing its revenue 2% in 2014, but they also see Sirius XM growing its top line five times faster. Ford is a great investment for many reasons, but Sirius XM is worthy of its premium as a growth stock for investors willing to take on the riskier play.
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