The following article is part of The Motley Fool's "Stock Madness 2005," a contest based loosely on the annual NCAA College Basketball Tournament, a.k.a. March Madness. From March 17 to April 6, our writers and analysts will engage in head-to-head competition with each other, advocating and arguing on behalf of 64 stocks we've selected as among the most interesting to Foolish investors. You, dear readers, are the fans and referees -- you'll read these exciting duels and then vote for the stock you think is the better investment.and should therefore move on to the next round of play. The company that survives six "games" will be our tournament champion, and its writer our most valuable "coach."

But, please, make no mistake -- "Stock Madness 2005" is a GAME!

Our writers are doing this for fun. They are enjoying the spirit of competition and the art of debate. They are delighting in the search for positives in the companies they've drawn.and negatives in the companies they're pitted against. They are NOT necessarily recommending these stocks as the ones they believe in above all others. As ever, YOU must decide whether the stocks we're writing about -- winners and losers -- are deserving of your investment dollars.

Cryptologic (NASDAQ:CRYP)
Toronto, Canada
52-week low-high: $11.82-$34.96
$396.4 million market cap

By Bill Mann (TMF Otter)

I would guess that the streak ends here. At the beginning of Stock Madness 2005, I started with four "teams": Apple (NASDAQ:AAPL), PetroKazakhstan (NYSE:PKZ), Valero (NYSE:VLO), and the company in this particular match-up, Cryptologic. We're now in the Final 8, and all of my teams are still alive. I'm 12-0.

However, I'm pretty sure that I could come up with the world's most ironclad argument this round for Cryptologic and still lose. Why? Because a disturbing number of the people who invest in my opponent, Sirius, are a bunch of stone-cold crazies. With that in mind, I may as well not hold back. Let's go into the Stock Madness version of the four-corners offense.

There may be no company that I enjoy writing about less than Sirius. Last summer I wrote about it quite a bit, and I got angry emails by the thousands from Sirius shareholders. These missives would display in copious quantities a complete lack of knowledge of grammar, math, accounting, or logic -- usually all of the above. While this is not an ipso facto indictment of the company, I will say this: By and large, companies get the investors they deserve. Sirius is unpleasant to write about because the responses one receives are mercilessly bereft of nutrition, almost uniformly from the "get that unbiased analysis crapola out of my face" school of rhetorical devices.

A giant asteroid could be plowing toward one of the Sirius satellites and they'd call it a "short ploy." It's really remarkable.

So, herewith are some of the most common retorts -- I'll correct the grammar -- we received from Sirius investors on account of our coverage:

1. "You just pump XM" -- meaning XM Satellite Radio (NASDAQ:XMSR) -- "because a Motley Fool is on the board!" If I had seen this once, I would have simply laughed at it. In truth, this claim came in from Sirius investors by the hundreds. It's breathtaking, really. It takes no more than 30 seconds to check an XM proxy to see that no one connected to The Motley Fool is on its board. Yet this became an oft-repeated legend. That so many folks who hold Sirius shares are unfamiliar with how to find such basic information is shocking. For the record: I'm not aware of anyone who has anything to do with Motley Fool editorial content even owning shares of XM.

2. "How can you say Sirius is expensive? It's $5 per share. XM is $30!" Again, repeated too often to be solely the realm of the fringe ignoriscienti. Apparently, the memo about shares being tiny (or in Sirius' case, teeny, teeny, tiny) fractions of the company got lost or was never read.

3. "We have the NFL!" You paid too much.

4. "We have Stern!" You paid too much.

5. "We're growing faster!" Stipulated. But all that future growth, on into the hereafter, is priced in.

6. "You loser! You couldn't knock the share price down." I never tried to. The shares of every company will eventually find their equilibrium. The ability of a group of true believers to defy the overpowering ju-ju that is my logic doesn't particularly surprise me.

7. "You're just trying to bring the price down so you can buy more." A corollary to the "article placement" theory above. To buy more shares, I'd have to have some shares. I don't, nor am I likely to.

8. "All longs disagree with you!" Does this include the Chippewa Falls Longs? I'm not surprised that people who own the stock disagree with me, but I am surprised that they think this would be (a) news to me, (b) interesting, or (c) relevant.

Sirius is growing quickly. It has enormous operating leverage, so if it ever hits cash flow break-even, it will make money just as quickly. But, as it has been since, well, forever, its stock is assuming an audience size that is simply improbable. So for the answer to the last question I received the most -- "Since the market has proved you wrong, have you changed your mind?" -- I say, "No, I believe that the fair value for each share of Sirius stock is no more than $0.50."

Oh, yeah, I almost forgot. Go, Cryptologic! You have the same low-marginal-cost model that Sirius does, but you're a lot smaller, your fixed costs are a lot lower, and your stock is a heck of a lot cheaper. I'm sure it won't be enough to win this particular battle, but it gives you a great deal more potential in the long run, which matters a heck of a lot more than some semantic battle.

Bill Mann owns shares of PetroKazakhstan.

Sirius Satellite Radio (NASDAQ:SIRI)
New York, N.Y.
52-week low-high: $2.01-$9.43
$7.13 billion market cap

By Tim Beyers (TMFMileHigh)

Well, here I am again up against Bill Mann. And I'm zero for three. But that ends now. The simple truth is this, Fools: Sirius should get your vote unless you really believe the company will go bankrupt. It won't.

For several rounds now, I've outlined the valuation case for Sirius, so I won't repeat it. But I will say that even the most pessimistic projections for satellite subscriber growth still call for 30 million by 2010. That's right; the conservative projection pegs growth at 46% annually. That's an iPod-size revolution that Sirius will profit hugely from. Period.

Bill's right about one thing, of course. Sirius is a speculative investment. That's why in such circumstances it's comforting to see management jump in with the rank and file. And that's exactly what CEO Mel Karmazin did in November, spending more than $8 million of his own money for 1.5 million shares on the open market. Check the math, folks: Karmazin bought in at roughly the price any one of us would buy the stock today. There simply isn't a better argument for Sirius' prospects than that. I humbly ask for your vote.

Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in the story at the time of publication. You can find out what is in Tim's portfolio by checking his Fool profile.


The 30 million number for total satellite radio subscribers is great. It rivals the number of cable subscribers in America, so I don't believe it for a second, but let's take it. Sirius alone has a price that requires it to have nearly 30 million subscribers. So unless Sirius is going to take all of them, then it's overvalued. And if it were to get all of them, it would just be fairly valued, with little chance for further appreciation. I mean, unless people get silly again. But that was, is, and will always be a temporary phenomenon. -- B.M.

I'd offer a rebuttal to Bill's argument for Cryptologic, except he didn't make one, opting instead for the "Sirius sucks" route. Whatever. So allow me to close by offering a reality check: Poker may be a beatable game, but it's a zero-sum system that pits player vs. player. Suckers will eventually stop showing up to hand over their money to more experienced card sharks. And when they do, they'll take Cryptologic's profits with them. -- T.B.

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