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TheStreet Open House

Sirius XM Gets Hedge Fund Love

BOSTON ( TheStreet) -- It took a 1,400% rise in the shares of Sirius XM (SIRI) for hedge funds and institutional investors to turn bullish on the satellite-radio company.

Sirius XM Chief Executive Officer Mel Karmazin recently said the company is "no longer a long-shot concept and company," and big-money investors agree. During the fourth quarter, institutional investors' increased positions in Sirius XM outpaced decreases by a count of 99 to 69. New stakes totaled 48 compared with 29 who sold out of the stock.

Mel Karmazin, CEO of Sirius XM

Hedge fund managers are raising their stakes in Sirius XM. Eighteen hedge funds added to current positions or established new ones, including heavyweights like Steven Cohen's SAC Capital Advisors and Shumway Capital. Ten hedge funds trimmed positions while only three completely sold out.

Institutional ownership accounts for only 33% of Sirius XM's outstanding shares, with more than 64% in the hands of individual investors, according to data compiled by Capital IQ. That compares to institutional ownership totals of 75% for JPMorgan Chase (JPM), 71% for Apple (AAPL) and 63% for Google (GOOG). Many stocks that trade below $5, such as Sirius XM, typically don't see high institutional ownership. Many mutual funds, for instance, have charter rules that prohibit ownership of stocks below a certain price level.

What makes the institutional purchases significant is the fact that shares of Sirius XM are up 15-fold since the lows of February 2009, when the company briefly flirted with bankruptcy before Liberty Media (LCAPA) stepped in with a lifeline. The stock is hovering near a 52-week high of $1.88 a share, the highest since before the financial crisis hit in late 2008. Institutional buyers, it seems, expect the stock to continue to climb.

Sirius XM has rebounded along with car sales. While Sirius XM does have a retail side of the business, the company gets its biggest boost from radio units installed by manufacturers like Ford (F) and General Motors (GM). Sirius XM offers new-car buyers a trial subscription and then works to convert those trials to paid subscriptions.

The improvement is shown in the company's key metrics. In Sirius XM's fourth-quarter 2008 report, subscribers totaled 19 million and the conversation rate of trial subscribers was a weak 44.2%. Average revenue per user was $10.60, while subscriber acquisition costs totaled $70. By comparison, Sirius XM ended last year with more than 20 million subscribers and a conversion rate that inched up to 45.1%. Average revenue per user climbed to $11.80 in the fourth quarter 2010, and subscriber acquisition costs dropped to $58.

Analysts are predicting that Sirius XM's share price will continue to ascend. Firms like Barrington Research and Wunderlich Securities, among others, increased their price targets on shares of Sirius XM. The stock is still well below the premerger share price of $4 but analysts, like hedge funds, still see some more room to run.

The following pages detail 10 hedge funds that initiated new positions in Sirius XM during the fourth quarter, ranked by share count, as well as what the funds were also buying and selling.

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