Tune into Satellite Radio

04/16/2004 12:00 am EST


Satellite radio, marketed primarily to automakers, provides 100+ channels of radio programming. Two firms comprise this market--XM Satellite with 1.5 million subscribers and Sirius, with 200,000 users.  Bernie Schaeffer, Tobin Smith, and Jamie Dlugosch offer their opinions on these players.

(For more information on the advisors cited below, please click on their photos.)

Schaeffer, Bernie"After a three-month period of consolidation we are seeing activity again in the two players in the satellite radio market--XM Satellite Radio (XMSR NASDAQ) and Sirius Satellite (SIRI NASDAQ), says Bernie Schaeffer, along with Schaeffer Investment Research analyst Ron Taylor. "Talk that shock jock Howard Stern (with 15 million listeners), might move his radio program to one of the subscription-based satellite providers is all speculation, but the story has definitely piqued the interest of traders. But from a sentiment standpoint, the real story regarding both these stocks is short interest. The current short-interest ratio on XMSR stands at 8.18. This ratio means that it would take more than eight days, based on the stock's average daily volume, for all short positions to be covered. And total short interest for SIRI increased 40% during the most recent reporting period, marking one of the largest increases in total short interest on the entire NASDAQ last month. So it appears that the speculative short-selling crowd has decided to wage war with this group of 'over-valued story stocks.' Typically, these situations run much further than you would expect. From a technical perspective, both of these stocks are starting to firm up. They are exhibiting strong relative strength and approaching their former highs. Both of these names appear to be attractive opportunities for speculators looking for growth stocks with strong sentiment and technical backdrops. In our The Option Advisor newsletter, we are recommendingXM Satellite Radio October 25 calls. The stock is up a whopping 17-fold off its November 2002 bottom. Strong technicals amid such pessimism suggests that the stock is far from reaching a top."

Dlugosch, JamesAdds Jamie Dlugosch, editor of The Rational Investor, "Sirius Satellite Radio enjoys a fairly healthy valuation based on its prospects in a huge growth industry. With a current subscriber base that is minuscule compared to the size of the market, investors in SIRI can enjoy watching the company grow into its valuation. In this case, SIRI's superior programming, including exclusive contracts with professional sporting leagues, will give the company a leg up on its competition. Over time I expect the company to reach my target of $10."

Smith, TobinMeanwhile,Tobin Smith, editor of ChangeWave Investing, is also a fan of Sirius. We note that he has been a long-term buyer of XM Satellite, and has already benefited from the stock's significant gains. Now he says, "I consider Sirius a buy recommendation.  I believe the next major event will be an announcement from Toyota to 'go ballistic' in installing Sirius radios in their new cars next year. I think it's a lock. Toyota has been slow to the game. They need to centralize on one provider, and I would note that they hate General Motors, which is a a minority owner of XM Satellite. Add in the fact that SIRI has a much better retail distribution system, and I now forecast they will overtake XM in market share by the end of the 2006. These guys have a duopoly in the US with XM Satellite, and I believe you will see satellite radio coming into the home and portable players big time next year."

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