We have seen the up and down motion of auto sales with each passing month. Up one month, down the next. High SAAR estimates followed by low SAAR estimates. The July numbers will be more of the same. May auto sales were up, June auto sales were down, but July seems to be tracking nicely. One moment auto analysts are ready to project recovery, the next they are thinking things might be slower than anticipated.
Sirius XM, in reality is somewhat insulated from this roller coaster given the fact that their guidance is well within the averages presented by the auto sales numbers. In fact, the SIRI guidance is safe on auto sales of 900,000 per month. The problem is that most investors are not aware of this fact, and thus when the auto sales roller coaster goes down, the SIRI equity can suffer with it. For investors in the equity this can remain very frustrating. Readers of this site understand these dynamics, and the frustration is compounded because you see it happening. For traders, July auto look to be good, and a spike in SIRI could happen....BUT...caution has now been issued.
Edmunds is reporting that there is reason to have caution for second half auto sales. Some of what they say makes good sense. The "recovery" has been tied to incentives. The "recovery" has been aided by higher than normal and more concentrated fleet sales. These issues give reason for Edmunds analysts to pause in proclaiming a full blown recovery, and thus projecting 2010 sales above 11 million, but below 11.5 million.
What I see is that the auto industry is projecting between 11.5 and 12.5 million. In my mind this will be the number that we see. The industry will incentivize and do whatever is needed to hit that range. They are already prepared to do this, and this target has been their goal for months. Thus, the goals of the auto industry are very "safe" for satellite radio investors in terms of guidance issued by the company.
In simple terms, a "recovery" by the auto industry and the cyclical news that follows it do not matter to the fundamentals of Sirius XM. When it does matter is when Sirius XM takes it on the chin because of the sheer number of investors who simply are not as well informed about the dynamics at play. When this happens it is not a dooms-day conspiracy against Sirius XM. Instead, it is auto analysts following the auto sector. These analysts could care less about Sirius XM. When it matters is when those that do follow SIRI get caught up in the cycle of the auto news more-so than they should. All SIRI investors really need to worry about is that a minimum of 900,000 cars sell each month with a preference being that the sales be right around 1 million units.
Traders will play the news and emotion of the roller coaster. SIRI traders will use auto numbers to tug the emotions of investors. I have seen dooms-day headlines, and rocket-ship headlines. The REAL FACTS are that FOR MONTHS the auto industry news has been well within what SIRI needs to hit or exceed guidance. SIRI investors need to learn to separate the real news from the headlines they see, and learn that SIRI will react to auto industry headlines because the majority of SIRI investors are not "in-the-know" on what all of these numbers really mean. Being "in-the-know" simply means you have an understanding of why things are happening. It does not mean that the equity will respond the way it "should" based on the real facts. Being "in-the-know" simply gives you an advantage of taking action if you so desire.
Will the auto industry sales be bumpy? Yes they will. Will this create roller coaster headlines? Yes it will. Rather than fight this, why not embrace it and use this to your advantage in terms of SIRI. Roller Coaster headlines are a traders dream come true.
Position - Long Sirius XM Radio