In this Motley Fool series, we pit two stocks against each other on five criteria to determine the better buy.

Today's matchup is a battle of two tantalizing stocks investors are too scared to buy: E*Trade (NYSE: ETFC) vs. Sirius XM (Nasdaq: SIRI).

Why are investors scared? In discount broker E*Trade's case, it got too heavily involved in subprime bets. The balance sheet is also a concern for the satellite radio king Sirius XM, but there is also lively debate on the viability of its business model.

Using five short-of-scientific-but-carefully-chosen criteria, let's determine which is the better buy.

Round 1: Balance sheet
I already mentioned that neither balance sheet is pristine. Looking at E*Trade, it's difficult to gauge how thoroughly it has cleaned up its subprime mess. It is very similar to Citigroup and Bank of America in this way. Both of these banks got burned big-time in subprime mortgage-backed assets, with Bank of America adding to its complexity by buying Countrywide and Merrill Lynch. And like E*Trade, Citi and B of A are trading at serious discounts to their former glory. The question on all of them is whether what's behind door No. 2 is a luxury mansion or a burned-down foreclosure. Sirius's balance sheet is more straightforward but equally scary. At more than 20:1, its net debt-to-equity ratio is almost twice that of E*Trade. Though I hate starting out with a tie ... Advantage: Push

Round 2: Operations
Though the business models of E*Trade and fellow discount brokerages TD Ameritrade (Nasdaq: AMTD) and Charles Schwab (NYSE: SCHW) face more and more competition from banks, smaller and niche-player brokerage companies, and each other, leading to less and less pricing power, E*Trade has a profitable business hiding behind its balance sheet carnage. The jury's still out on Sirius XM as it struggles to profitably monetize its impressive just-shy-of-20-million subscriber count. Like E*Trade, Sirius faces real threats to its operations. Although it's old-school, regular old FM radio is still around and competing. 

On the new-school front, mobile devices are coming on strong. Apple's (Nasdaq: AAPL) iPod allows users to listen to their own music mixed manually or automatically. But you could argue that's just the replacement for the compact disc. More scary for Sirius is Apple's iPhone and Google's (Nasdaq: GOOG) Android-enabled devices. Along with the ability to listen to your own music, these allow users to stream Internet radio and use services like Pandora and RealNetworks' (Nasdaq: RNWK) Rhapsody. Of course, you could also get Sirius XM on the devices, but the competition is stiff and, in places, free. It's serious enough that some commentators are questioning whether Sirius will be around in three years. Advantage: E*Trade.

Round 3: Safer bet
In other words, which company will put you in a better position to "never lose money" (as super-investor Warren Buffett says)? Because of its proven operations, I'll give the nod to E*Trade. But it's a very slight nod. Advantage: E*Trade.

Round 4: Sexier bet
Howard Stern? Battling Internet competition on mobile devices? Music for the masses? Shares trading at penny stock prices (though with a legitimate market cap)? Advantage: Sirius XM.

Round 5: CAPS rating
Our CAPS community much prefers E*Trade, giving it four stars (out of five) vs. just two for Sirius. Advantage: E*Trade.

The blow-by-blow recap



Sirius XM

Balance Sheet

½ X

 ½ X



Safer Bet


Sexier Bet


CAPS Rating


There you have it. E*Trade takes down Sirius XM 3.5 to 1.5, making it our better buy. Before you decide for yourself, check out the three most compelling numbers on each company here and here. What do you think? Vote in the poll below. Then share your thoughts in the comments box below the poll.