Column Sends Sirius Backers Into Orbit

I signed up for Sirius service back then and loved it. Still do. I get it.

But the purchase of a stock is not a vote in favor of a product. It represents a share of the future earnings stream of a company. Over the long history of the U.S. stock market, there has been a range of valuations for hot new technologies and media. And while Sirius shares sat at the extreme low end of that range two years ago when most were skeptical of its potential, it's now way above the top of the range as millions have piled on board.

These days the market thinks Sirius will be eight times more successful than eBay (EBAY - Cramer's Take - Stockpickr) and 12 times more successful than Yahoo! (YHOO - Cramer's Take - Stockpickr) even though its management has never earned a dime and hits shareholders in the face with dilution and debt.

That may be right; who knows? Good investing is about anticipation, not reaction. Maybe satellite radio will cure cancer, turn water into wine and bring peace to the Middle East. At the moment, however, it only promises to solve the boredom of a long commute and save the world from light-beer commercials -- and that might not be good enough.

Indeed, the bottom line is that above $4, the stock represents a bet that a single radio personality, Howard Stern, will be able to deliver 10 million subscribers over the next couple of years. That makes Sirius a sort of Martha Stewart Living Omnimedia (MSO - Cramer's Take - Stockpickr) of the radio dial, except 27 times more expensive. If anything happens to the guy, the stock goes up in a poof of smoke. No one is going to pay 190 times sales, much less earnings, for a service that simply provides an opportunity to hear uninterrupted NFL games and Kelly Clarkson tracks in the middle of the desert.

One more thing: My column did not say that Apple Computer (AAPL - Cramer's Take - Stockpickr) was a better stock than Sirius. It said that the companies represented two different successful paradigms: One in which users select and download music to listen to, and the other in which users enjoy it passively without commercial interruption.

This year, I pointed out, the stock representing active choice was beating the stock representing couch potatoes. Next year could be different. In fact, it wouldn't shock me to see Apple gobbled up at a premium before long by a larger company like Sony (SNE - Cramer's Take - Stockpickr) or Philips Electronics (PHG - Cramer's Take - Stockpickr).

Personally, I prefer a third path for music -- a blend of the two. I subscribe to -- and constantly use -- Rhapsody.com and Napster, which are online services of RealNetworks (RNWK - Cramer's Take - Stockpickr) and Roxio (ROXI - Cramer's Take - Stockpickr), respectively.

RealNetworks hasn't received much credit for Rhapsody, but it is a fantastic service that charges $10 per month for access to about 750,000 songs. Why buy another CD or download anything when you can listen to the entire backlist of U2, Eminem, Yo La Tengo, Wilco, Johnny Cash, Tupac Shakur, Death Cab for Cutie -- just about whatever you like -- at will via your computer? Through a little switch, you can play all this music through the stereo system in your living room. There's no car radio option. But because I commute two miles to work on a motorcycle, that's no big deal anyway.

At the end of the day, all of us want both convenience and choice in our music. That's common ground. In our stocks, however, outside of the fun and profit of pure speculation on a momentum run, we should also want a foundation of value. And until Sirius can come up with a factory-installation deal with Ford (F - Cramer's Take - Stockpickr), as explained in my prior report, it's lacking.

Hey Modelman: In recent columns, you have asked for reader suggestions for stocks that trade at $10 or $20, or pay good dividends. How about one that does both -- the new, post-bankruptcy telecom MCI Worldcom, now just called MCI (MCIP - Cramer's Take - Stockpickr), which trades for $20 and pays a 7.9% dividend?

Modelman: The valuation and business prospects of MCI are very interesting, especially because the majority opinion of the company's prospects is still so highly negative. Its largest independent shareholder is vulture investor and Mexican billionaire Carlos Slim Helu. Its institutional holders are a who's-who of special-situation hedge funds, turnaround funds and value funds, including the one run by Kmart (KMRT - Cramer's Take - Stockpickr) chief Eddie Lampert.

Run by former Compaq honcho Michael Capellas, MCI has beat earnings expectations handily so far due to successful cost cuts and appears on track to be prettied up to attract a suitor. It looks good to make my $24 one-year objective, especially with the 7.9% head start.

Here is a list of other $10 and $20 stocks that were nominated by readers:

Acambis (ACAM - Cramer's Take - Stockpickr), from John Sniegowski: "This company invested quite a bit in 2004, and the earnings were not there to fully support it. As a result, the price of the stock now is a good value. They are in a good position to expand sales this year. They need a couple of their vaccinations to pass testing and be approved (West Nile, yellow fever, Japanese encephalitis). The vaccinations under development are applicable across the world, so you can say that their product is well-diversified."

Northwest Pipe (NWPX - Cramer's Take - Stockpickr), from Dave DiCerbo: "I've owned this stock a long time and rode it from $17 to $8 and back to where it is now. Backlog continues to increase. Water transmission was up over $100 million in backlog after the third quarter, whereas it used to be much lower just a year ago. Orders are strong. They're cutting costs. Expecting earnings of at least $2 per share next year and tangible book value of $17.90. This is money in the bag."

Cepheid (CPHD - Cramer's Take - Stockpickr), from Paul Dominguez: They are working with Northrop Grumman (NOC - Cramer's Take - Stockpickr) to detect anthrax in the U.S. mail, and deploying units nationwide. Their automated DNA analysis system reduces the time to get DNA results from days to less than an hour. They have been getting licenses all year from different medical research companies to use their technologies with their DNA machine and have received licenses for export from the U.S. State Department. Their system will eventually work in hospitals and police labs all over the world, making DNA analysis human-error proof and extremely quick.

Candela (CLZR - Cramer's Take - Stockpickr), from Narinder Thakral: Candela is a "concept" stock, a company that makes aesthetic dermatology lasers. It has good growth ahead, what with baby boomers so concerned with the appearance of their aging skin.

I'll track all of these over the next year and report back.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Acambis, Candela, Cepheid and Northwest Pipe to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.