Sirius Sends a Strong Signal

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Investing in the under-$10 stock space can be interesting, exciting and nerve-wracking. But if you put the butterflies aside, the volatility can lead to large percentage gains, putting an exclamation point on the speculative portion of your portfolio.

One example of this is Sirius Satellite Radio (SIRI Quote), a stock we found in early October when screening for value plays -- stocks that traded a lot of shares but hadn't gained much in price during the past year. The company, which provides commercial-free satellite talk and music radio to 800,000 subscribers, appeared on our screen, and after some research into it, it looks like a winner.

We spent one entire weekend scanning the company's SEC filings to get a feel for what it's been doing, checking over its Web site to see how its offerings stacked up vs. competition, and visiting retail outlets here in New York to gauge how consumers were receiving the products in Radio Shacks (RSH Quote) and Best Buys (BBY Quote). Needless to say, we were impressed.

We were immediately taken by how well CEO Joe Clayton had differentiated Sirius' service from competitor XM Satellite Radio (XMSR Quote). Sirius has a National Football League deal that gives it exclusive rights to broadcast all the games, not just the local action currently offered in most areas. That alone makes the story more attractive and gives it access to a demographic XM can't touch.

While Sirius' finances weren't perfect, with about $450 million in debt and negative cash flow from operations projected through 2007, the company did have enough leeway to sign more talent without significantly diluting shares or adding to debt balance.