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 8, 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.

Los Gatos, Calif.
52-week low-high: $8.91-$38.62
$623 million market cap

By Rick Aristotle Munarriz (TMF Edible)

For a Netflix and Sirius subscriber like me, these are exciting times. Two companies that I believe in -- and whose products I fully endorse -- made it this far. Excellent!

As the Netflix correspondent, I know that I am the underdog here. Yes, any sane valuation metric will show Netflix -- with twice as many subscribers, yet trading at less than a tenth of Sirius' market cap -- is the better stock to buy. But I have seen thousands of you line up to cast your vote for Sirius through the first five rounds of this tournament. You're a blood-hungry lot, and I'm waving red disc-mailing envelopes. Is that a thick battering ram in your hands, or are you just happy to siege me?

If Bill Mann couldn't reason with you using facts, I guess I'm down to one desperate heave into the netted bucket from miles away as the seconds tick to zero. That's right, I am going to lie to you. I am going to tell you that Sirius has changed its ticker symbol to NFLX. I am going to tell you that I bit into a grilled cheese sandwich bearing the likeness of Howard Stern and that it spoke to me.

The sandwich asked for you to vote for the company that has turned a profit in the past, sports the cleaner balance sheet, and respects its investors by not diluting its outstanding shares to such a loony degree. It also mentioned, in passing, that Reed was a much cooler CEO name than Mel -- so there.

If you can't listen to reason, at least listen to the sandwich, OK? Would processed dairy products ever lie to you? It's simple, really. Tim has to convince you why Sirius is undervalued at $7 billion, while I only have to sell you on the notion that Netflix is worth more than its present $0.6 billion price tag. Beyond that, Netflix will produce more than its market cap in sales this year. But Sirius? It will need about 40 million subscribers before it can make the same claim -- and by then, how much more will the shares have been diluted?

I see this final pairing as the ultimate buddy road flick. Whether it's a pair of lifelong friends sucking down pinot noir in the wine country or Bob and Bing on the road to Bali, Zanzibar, or Old Town Alexandria, Sirius and Netflix belong together as scrappy growers in explosive markets. Only Netflix is like Crosby, with the suave demeanor and the better singing voice. It is the market leader in its niche. It's read the Road to Profitability script and has memorized the lines.

Sirius? It's a lot like Bob Hope. It's entertaining to watch. It's good for a chuckle here and there. It knows how to rally the troops in times of war. And, if you are buying into this $7 billion company trading at 70 times trailing sales, believe me, you're going to be needing a lot of Hope.

Rick Munarriz has been a Netflix investor -- and subscriber -- since 2002. He has also been a Sirius radio subscriber since last year but does not own stock in that company.

Sirius Satellite Radio (NASDAQ:SIRI)
New York , N.Y.
52-week low-high $2.01-$9.43
$7.22 billion market cap

By Tim Beyers (TMFMileHigh)

And so it ends. Here. Now. With the unlikeliest of unlikely finals: Sirius vs. Netflix. One is an outrageously overvalued satellite radio company. And the other is a movie rental business in decline.

To get here, each of us has had to sink a lot of the kind of 30-footers that propelled Vermont over my Syracuse Orange in the real version of this tournament. We're both a little like those spirited West Virginia Mountaineers, who just kept launching, and hitting, shots from beyond the arc in game after game after game. Talk about madness.

In this contest, Netflix is John Thompson's Georgetown Hoyas and Sirius is Rollie Massimino's Villanova Wildcats. So, in an unprecedented coaching move, I'm going to turn my back on my own team and tell you exactly why you should vote for Netflix. No, really:

  • More than one-third of Netflix's net worth is in cash on the books. By contrast, Sirius' net cash accounts for less than 2% of its enterprise value.
  • Netflix generates more than $100 million in free cash flow. Sirius? Yep, it's bleeding more than $300 million in cash annually.
  • Netflix insiders own nearly 30% of the company, and that ought to keep management aligned with shareholder interests. By contrast, Sirius management has sold off all but a fraction of 1% of the company to outsiders.

If Sirius wins this tournament, it's a sure sign of the apocalypse, Fools. Right up there with Donald Trump hawking his own fragrance for men. Or William Shatner releasing his own album. Or Pamela Anderson writing a best-selling novel. Yet just as all these things actually happened, so, too, does the impossible come true in the world of stocks. Eighth-seeded Villanova did beat the supposedly unbeatable Hoyas in 1985, after all.

The Wildcats did it by shooting a lights-out 79%. It went up, and then it went in. And that's what Sirius needs to do over the next five years to justify your vote. It is possible. Probable? No. But then again, Rule Breakers never are.

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.

I warned you that I was going to play dirty. Now it seems that even Tim seems to like Netflix. It doesn't matter. You're still looking for the "vote" button that leads to the Sirius punch bowl. You're no lemming. You're just drawn that way.

Valuation matters. You should realize that if you find yourself in receipt of at least one of the 1.3 billion shares of Sirius shares outstanding. But if that doesn't work, I'm down to my last resort. Vote for Sirius, and I'll eat the rest of the sandwich. The King of All Media in grilled cheese form? Like the sandwich itself, it'll be toast. You've been warned. -- R.A.M.

Whom are you going to believe? A faux radio shock jock burnt into a slab of toast? Or Rick, who says Sirius is a Rule Breaker? Yeah, I'm going with Rick, too. Let him eat grilled cheese. --T.B.

Who won? Go here to cast your vote.

The Motley Fool is investors writing for investors.