Sell Sirius XM Ahead of Earnings, Buy Chesapeake Energy

NEW YORK (TheStreet) -- As we now enter the sixth week of second-quarter earnings reports, I think it is fair to say that investors have been learning the most important lesson of all when it comes to these reports: "expect the unexpected." Or when that has not worked, they are learning to "expect nothing, while hoping for the best."

In my mind, these are the only ways to avoid the rash of disappointments that have marred portfolios, some more than others.

There was the surprise by Yahoo! (YHOO), followed by the Chipotle (CMG) disaster. And sandwiched in between that was Microsoft's (MSFT) first ever quarterly loss and a "ho-hum" quarter from IBM (IBM). Oh, and let's not forget that Apple's (AAPL) report missed expectations, though it reported 20% increases in both revenue and profits.

So essentially, reporting period is akin to the box of chocolate: "You never know what you're going to get."

Nevertheless, in this article, we will look at two companies that are due to report earnings this week and try to predict which direction they are likely to go due to their reports. The first company is Sirius XM (SIRI), which we are looking to sell, and Chesapeake Energy (CHK), which looks like a buy recommendation.

Sell Sirius XM

Sirius XM will report earnings on Tuesday, Aug. 7 before market open, and consensus estimates call for the company to report 2 cents in earnings per share. Outside of that, there is very little to look forward to. I say this because on July 9, the company, for the most part, announced its results, so there will be no surprise.

In its pre-announcement, Sirius said it grew subscribers to the tune of 622,042 in the second quarter -- this, despite having recently raised its base subscription rates. Its net adds for Q2 represents an annual growth rate of 38% from 2011. So if you are keeping score at home, Sirius has added 1 million net subscribers in the first half of the year, bringing its total to about 22.9 million as of June 30.

Which raises the question: Why did Sirus (only) predict 1.3 million additions for all of 2012? In fact, its weak guidance, combined with uncertainty about the implications of increasing its rates contributed to concerns about its growth prospects. Nonetheless, as result of its Q2 performance, the company has already raised its full-year subscriber guidance to 1.6 million and its revenue guidance to $3.4 billion.

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