If you're hungry for a piece of either Sirius XM Radio (NASDAQ:SIRI) or Pandora Media (NYSE: P), there's a way to score a position at a discount. Liberty SiriusXM (NASDAQ:LSXMA) (NASDAQ:LSXMB) (NASDAQ:LSXMK), the Liberty tracking shares that own a majority stake in Sirius XM, continues to trade for less than the underlying securities. If you like Sirius XM or if you like Pandora and believe that the Sirius XM buyout will happen in the next few months, Liberty SiriusXM may be a right fit for your portfolio.
Liberty SiriusXM owns what is currently a 71.2% stake in Sirius XM, a $19.9 billion position based on the satellite radio monopoly's current $27.6 billion market cap. That wouldn't seem like such a big deal if Liberty SiriusXM currently weren't commanding a market cap of $12.7 billion, giving investors a play on Sirius XM Radio by paying roughly two-thirds of the price.
Fishing for a deal on the dial
Liberty SiriusXM doesn't just own the lion's share of the Sirius XM Radio stock. It has also purchased $1.05 billion in debt of Pandora and iHeartMedia, giving it some skin in both streaming and terrestrial radio.
Another ace in Liberty SiriusXM's hand is that it's been taking advantage of the tracking stock's discount to its net asset value by eating its own cooking. Liberty SiriusXM acquired another 3.2 million shares of its own stock during the third quarter.
But hold on. If all of this has you excited, let's temper that enthusiasm. Tracking stocks can continue to trade at steep discounts for years, and there's no guarantee the markdowns will narrow outside of an exit-strategy event. In fact, the discount has only widened. Liberty SiriusXM rolled out in the springtime of 2016 during the recapitalization of Liberty Media into three different asset components, and just a couple of months later Deutsche Bank was singing the tracking stock's praises as a way to score a 14% discount to the underlying assets. That discount has more than doubled over the past two years.
Bears can argue that the stock gains are also being discounted. Liberty SiriusXM stock rose just 16.9% last year, the first full trading year of the investment. Sirius XM common stock climbed 20.4% on its own. This year has been even more of a head-scratcher. Sirius XM stock is trading 16% higher this year, up nearly 17% once you bake in its quarterly dividend. Liberty SiriusXM is actually trading slightly lower year to date.
It's easy to recommend Liberty SiriusXM as a novel way to buy into Sirius XM -- or Pandora -- at a discount. However, the inability to realize that discount and the market's recent aversion to tracking stocks make this a riskier play than you probably think. It's a thinking investor's way to buy into the satellite radio market, but taking the brainy approach has only burned investors since the tracking stock hit the market 26 months ago.