Where’s The Bottom
With Sirius and XM at long term lows, the natural question is, “where is the bottom?”
The answer to that question can take many forms, but something we need to consider is how it is that we got to where we are now.
1. The merger process has taken quite a long time, and the uncertainty associated with the long wait has caused the equities to suffer, and the confidence of investors to erode.
2. The Wienkes analysis (Goldman Sachs) set a low target for Sirius and XM, and the street reacted by selling off in a substantial manner.
Wienkes carries a “Convicted Sell” on Sirius, This is the lowest rating that is offered by the firm. When Wienkes issued his note, he set a $1.00 price target on Sirius as a stand alone company, and a $1.75 target as a merged company.
Most seem to feel that the merger will pass through the FCC process, so what we are dealing with is the $1.75 price target. Sirius is very close to that target right now. So close in fact that we should hear from Wienkes soon. The question is what his opinion will be.
If he wants to keep a “Convicted Sell” on Sirius, then he will have to lower his price target. This puts him in a position of establishing a merged company price target that is getting quite close to his stand alone target. Most people believe that the merger will deliver synergies, and even Wienkes himself sees synergies. This fact, in my opinion, would limit the level to which Wienkes can maintain a “Convicted Sell”. If he were to maintain that rating, any price target under $1.50 would likely begin to be questioned by the street.
Thus, one possible bottom is $1.50 in my opinion.
The other choice that Wienkes has is to “Upgrade” Sirius to a “Sell” rating. Yes, that would actually be an upgrade from Wienkes. He could establish a lower target with such an upgrade, but at that point the “conviction” of his sell rating would lose some of its power.
Whether people believe it or not, it is clear that Wienkes has the ear of the street. Whether his opinion is truly believed, or simply used by the bears to drive the price down can be debated, but at this point that debate is almost immaterial. This is because it seems likely, and perhaps even logical that these stocks are near their bottoms.
Now, before people run around thinking that the bottom is in, I would offer a few cautions. Until the merger decision is rendered, there is limited movement in these equities no matter what Wienkes opinion is. Additionally, these equities seem to be trading on emotion. Certainly there is no guidance yet, and until there is guidance, assumptions can and will be made.
Thus, while we may get an answer to the Wienkes saga, there is still a big factor in that a merger decision has not yet been reached.
If we have seen one thing in SDARS, it is that swings are possible with these stocks. Good news tends to drive things higher than it should, and bad news drives the prices lower than it should. Investors are at a point of deciding what speculation and assumptions to follow, and goals need to be established for short or long term. Investors strategies need to consider both aspects. There are investors who are in for a long term, and investors that are playing the merger on a short term basis.
What to do???
Watch the sector closely. Watch the merger process. Watch the volume. Establish your goals, and try to understand the volatility that short term traders (buyers and sellers) will bring to these equities.
At this point try to consider WWWD (What Will Wienkes Do) and WWFCCD (What Will The FCC Do).
Position – Long Sirius, Long XM
Honestly Tyler, Don’t you think they are just a couple of weeks from merger. That Goldman analyst has been down on Sirius forever. You think that will change? I doubt it. My belief this is trading all on emotion right now. I don’t believe any analyst holds more credibility here. Things should calm down post merger. Everybody is pretty much disgusted with waiting. Its all emotion.
Post merger I think it becomes all about cash flow, not emotion. In a way, all this fear may actually help the merger get approved.
Thanks Tyler for all your great efforts. They are very much appreciated. Judging by the rise in the Sirius and XM stock prices this morning and the consistent ask share numbers being consistently lower than the bid numbers this morning, hopefully the bleed has stopped and will reverse itself. With regard to the market’s panic reaction to the “sky is falling” analyst report, I think it is the direct result of the backdrop of our overall economy. Every day news is full of dire economic reality and predictions. Economic news seems to be the new “Britney Spears” soap opera of the moment. The general population is very risk averse – very scared for their economic well being. I don’t think people are wrong to be scared about the economy. So, a dire report from a single analyst got people running for shelter. In reality, the stated fact that “young people” are buying IPods does not preclude them from spending a LOT of money on cell phones, cable TV, computers, computer games, music downloading services, etc. (Additionally, not all of us are “young.”) Investors seemed to react to statements like that in the analyst’s report. After all, even if you never heard of the guy, he is from a well known, well respected brokerage firm! With the merger now looking more like a reality, I wish I had more money to buy more Sirius stock at these firesale prices. Don’t get me wrong – I am losing sleep over the recent stock price deflation due to people’s overreaction, but I keep reminding myself that we seem to be almost at trail’s end and a nice meal at the Inn seems within reach.
I think everyone needs to wake up and smell the crap,currently going by the name of Goldman Sacks.How traders are so unaware that Goldman makes a huge portion of their revenue by trading stocks is just shocking to me! Their buying Sirius and XM at the lowest prices in five years.coincidently a week or so before their long awaited merger approval.They stand to make more money on this trade than anything they have had in a while.Probably millions and millions of dollars thanks to them falsely scaring so many naive share holders.That`s their forte and their pro`s at it.As soon as the merger is approved another firm will upgrade Sirius and XM to a strong buy and at that point you won`t hear a peep out of Goldman as they sit back and wait to make a killing on both stocks.Seriously people,wake the F up!