U.S. Stocks Rebound in October Spurred by Better Earnings. Buy SiruisXM Satellite Radio (SIRI)
Major U.S. stock indexes rebounded handsomely in October (S&P 500/+8.3%; Dow Jones 30/+8.5%, NASDAQ/+9.4%) as better-than-expected earnings from their components poured in during the month. In fact, 75% were beating their profit projections. As a result, 3rd quarter profits are down only 3.9% versus the negative 6.1% originally estimated. All this resulted in the U.S. stock markets attempting to reach for new highs.
Warning signs, however, remain on the horizon as 3rd quarter Gross Domestic Product (GDP) gains of only 1.9% could result in lower corporate profit growth as we head into 2016. In addition, small-cap stocks have not joined the large-cap rally, which may indicate that economic and profit growth will not be as robust as hoped for in the coming year. With the overall U.S. stock market nearing full valuation, caution in committing new capital at this level may be in order. However, we see no need at this time to make changes to our TSOA Retirement Allocation Model Portfolios.
SiriusXM Holding, Inc. (SIRI) – A Good Speculative Buy
We spent the last month evaluating and shopping to replace our 10-year old Sport Utility Vehicle (SUV). After visiting 8 dealerships and test driving 12 cars, I noticed that all of them were offering 3-month trials of SiriusXM ad-free radio services. This sparked me to research SIRI more since I already own some shares. Here is a short summary of what I recently found and why I believe SIRI is a good speculative buy:
- SIRI broadcasts through various channels using many different personal electronic devices (cars, cell phones, tablets, etc.)
- It produces and re-sells content ranging from music, sports, comedy, business, general news, etc.
- Its subscription-based business model is finally establishing a strong foundation after many years of mismanagement as financial results are now showing positive trends (i.e., new subscribers up 21% in the 3rd quarter).
- While SIRI’s stock has performed well (up 23% for one year and up 175% for the last 5 years), its trailing Price Earnings Ratio (PE) multiples of 41 times earnings makes it a volatile holding.
- SIRI could become a major and dominant player in mobile broadcasting if its subscriptions continue to grow significantly.
There are numerous reports available for you to further research SIRI before taking any action (i.e., Google “SIRI stock research”). I believe it is a good speculative buy at around $4.00/share and using a slow accumulation strategy between $3.80/share and $4.10/share combined with a very long-term perspective (i.e., 5 or more years). I will continue to follow SIRI so stay tuned for additional comments in future blogs by registering for a free subscription in the green box here.
Note: Jim Tso owns SIRI in his Roth IRA accounts.