When I bought a new vehicle last year, it arrived with a free
six-month trial to
Sirius XM Radio (Nasdaq:
, the commercial-free satellite radio provider. I was skeptical,
but took advantage of the trial -- after all, it wasn't costing me
anything. But with dozens of free, local radio channels at my
fingertips, I couldn't imagine why I'd pay for it.
Fast forward one year and I admit I'm hooked. Sirius has become
a part of my driving routine. Most of the time, the channel is
parked on classical music, although I occasionally switch to
commercial-free talk shows. Now, I find it hard to imagine going
back to commercial radio!
It seems I'm not the only one. Sirius has developed a loyal
following. The world's largest radio broadcaster, by revenue,
currently has 22.9 million subscribers. And this number is
For the third time this year, the company raised its full-year
guidance on net subscribers. Management now expects to add about
1.8 million new subscribers by year-end, up from previous estimates
of 1.6 million.
Since many new cars come with a Sirius trial subscription, much
of the company's growth is driven by robust North American auto
sales. An August ScotiabankEconomics report showed double-digit
gains in North American car sales so far this year -- the highest
level since 2007. Similar increases are expected in the second half
of 2012, due to record low interest rates.
Sirius isn't just found in people's cars, however.
Commercial-free radio programming has found its place in the home,
the office, and in businesses, like restaurants and hair salons. In
fact, Sirius is the second-largest subscription-based entertainment
provider in the United States behind only Internet movie provider
. And, according to many industry analysts, Sirius should be able
to double its user base in the coming years.
The technicals paint abullish picture for Sirius. Since December
2010, the stock has been in amajor uptrend , rising about 390%. As
I'll explain below, theshares show no sign of slowing down.
By April 2011, the stock hit a multi-year high at $2.44;
however, unable to maintain this level, Sirius fell to a low of
$1.27 before again gaining ground. The stock tested resistance near
$2.40 in March 2012. But, yet again, it could not penetrate this
level, and fell.
Hitting a low of $1.78, the stock clung to support for several
weeks, marked by the intersection of the major uptrend line.
Gradually rising off this low, shares jumped in June 2012, and have
not looked back. An accelerated uptrend line has since formed.
In late July, the stock moved over 10% in a week on
higher-than-normalvolume . In the process, the shares finally
managed to break $2.44 resistance. For several weeks throughout
August and much of September, the shares plateaued just above this
former resistance level, which now marks support.
However, since mid-September, the stock has again been moving
higher. This Oct. 8 trading week, Sirius hit a new multi-year high
at $2.79. The next major resistance is near $4, a resistance level
dating back to 2006-2007. From current prices, that would represent
a 46% gain.
This bullish technical outlook is supported by strong
fundamentals. For the upcoming third quarter, to be reported Oct.
30, analysts' project revenue for the period will increase 12.6%,
to $858.6 million, from $762.6 million in the comparable year-ago
With almost 1.5 million net subscribers already added in 2012,
and continuing growth in auto sales, analysts expect Sirius'
full-year 2012 revenue to increase 13.3% to $3.4 billion, from $3
billion last year.
Although analysts' project upcoming third-quarterearnings will
stay flat, at $0.02 per share, full-year 2012 earnings are expected
to rise a whopping 686% to $0.55, compared with 7 cents per share
last year. At current levels, that means SIRI is trading at less
than 5 times next year's projected earnings.
Given the company's strong technical and fundamental growth
outlook, I plan to go long on the satellite radio provider.
Risks to consider:
Much of the company's projected growth is based on strong sales
in the auto industry. If new car sales fall, so would the company's
growth prospects. However, because Sirius is also making its way
into the home and businessmarket , the stock should continue to
Action to Take -->
Buy SIRI at themarket price . Set stop-loss at $2.33, slightly
below important support. Set target at $3.99 for a potential 45%
gain by late 2013. Risk/reward ratio: 3-to-1.
This article originally appeared on
Chart Signaling 45% Upside in This Under $3 Stock
-- Dr. Melvin Pasternak
Melvin Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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