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Sirius XM Stock Could Quadruple, Hodges Says

Stocks in this article: SIRI HDPMX P GM F CROX FOSL

BOSTON ( TheStreet) -- Sirius XM (SIRI) shares may quadruple to as much as $8 in the next three years as the satellite-radio company adds subscribers without many new costs, says Craig Hodges of the Dallas-based Hodges Fund (HDPMX).

Hodges says Sirius, which reports second-quarter financial results Tuesday, could follow a similar trajectory as footwear maker Crocs (CROX) and clothing and accessories company Fossil (FOSL), which attract a similar rabid fan base of investors. Crocs shares are up more than 840% since the financial crisis took hold in late 2008, and Fossil shares have rallied 400% over that same time.

Sirius XM, which trades at $2.11, headed toward zero two years ago, pummeled by net losses and bankruptcy fears. But the company has continued to add subscribers, helped by a rise in new-car sales.

"As a $2 stock, it could be worth $6 or $8 in a few years. It could be that type of a winner," Hodges says of Sirius XM. "I would say that it's a two- or three-year stock, though, if I were a buyer today."

Hodges' bold prediction would make Sirius XM's hefty retail-investor base very happy if it were to come true, and Hodges says with a laugh that he understands the fervor his comments could generate. But as an owner of Crocs since $1 (it now trades for $31) and Fossil since $3 (the stock now trades above $125), Hodges knows how patience can pay off.

Sirius XM is a holding in the $307 million Hodges Fund, a multi-cap core equity mutual fund created in 1992, and the $9 million Hodges Pure Contrarian Fund (HDPCX), opened in 2009 to invest in beaten-down stocks. As of June 30, Sirius XM represented a 3.1% weighting in the former and 3.5% in the latter.

As part of the Hodges Fund, Sirius XM counts Wal-Mart (WMT), Cummins (CMI), Southwest Airlines (LUV) and Halliburton (HAL) among its peers.

Hodges' funds have reduced their positions in Sirius XM, which seems to contradict his outlook on the company. The funds now own about 5 million shares, down from 12 million shares previously. Hodges says the selling was only profit taking as the funds had costs as low as 56 cents, and he notes that Sirius XM remains a significant position in each of the two funds.

Not all Sirius XM watchers share Hodges' rosy view. Analysts following the stock have an average 12-month price target of $2.24, according to Bloomberg. The most optimistic view from Wall Street analysts tops out at $2.50, well below Hodges' long-term target. Hodges, though, says Sirius XM has developed into a powerhouse at turning subscribers into profit.

"If everything goes right for these guys and they add subscribers and convert those who try it, you could have real money fall to the bottom line," Hodges says of Sirius XM.

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