The news began to roll in as the morning progressed. May 2011 is shaping up to be the worst month in auto sales so far in 2011. The market reacted instantly, and Sirius XM (NASDAQ:SIRI), with a heavy reliance on auto sales for subscribers, felt some of the pain. Sometimes, even with a huge amount of knowledge on what does and does not impact an equity, the tenor and perception by the street rules the day.
I have oft stated that auto sales of 1 million equates to Sirius XM being able to announce good numbers across the board. This philosophy has born itself out time and time again over the years. I have also stated on many occasions that sometimes perception outweighs the facts. While final numbers for May auto sales are not out yet, it does appear that the number of sales will be right in the neighborhood of 1 million units. Thus, for Sirius XM the numbers are not bad. They will actually have two months worth of sales figures with April and may sales combining to be over 2 million cars sold. Savvy investors are aware that the May news, as it relates to satellite radio, are not bad at all. This is simply a case of bad news in the auto channel being translated into bad news for Sirius XM.
Ford and GM both announced slight declines while Chrysler announced gains on a year over year basis. Nissan gave a little insight on the impacts of the quake and tsunami by posting a year over year sales decline of 9.1% to just over 76,000 units.
The bottom line is that despite the fact that auto sales for May are in tune with what Sirius XM needs, the news of declines is taking center stage. This is something that can be viewed as an opportunity for longs seeking a lower entry point as well as an opportunity for shorts to bolster their position. These are the dynamics Sirius XM investors need to deal with on a regular basis. May’s weak sales will be the perception of the auto industry until we see what June delivers. The lesson here is that auto sales will impact this stock and therefore it is prudent to track that information.
Position – Long Sirius XM, Long Ford