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5 Service Stocks for 2012

Stocks in this article: VMED ACM PCLN MELI SIRI

NEW YORK ( TheStreet) -- As per the Institute for Supply Management, the U.S. service sector index rose to 52.6 in December from 52.0 in November after slipping to its two-year low in the previous month. Any reading above 50 indicates expansion in the services sector. Economists expect fourth-quarter U.S. growth to outpace the 1.8% rate recorded in 2011 between July and September, and foresee the economy expanding by a gradual 2% in 2012.

These five stocks have potential upsides ranging from 11% to 44%, with buy and hold guidance of 73% and 22%, respectively, based on average estimates of analysts polled by Bloomberg.

The stocks are listed in ascending order of upside potential.

5. SiriusXM Radio (SIRI) is a U.S.-based satellite radio company. It broadcasts more than 135 satellite radio channels of commercial-free music, as well as premier sports, news, talk, entertainment, traffic, weather and data services to more than 21 million subscribers. SiriusXM offers an array of content from many of the biggest names in entertainment, as well as from professional sports leagues, major colleges, and national news and talk providers.

For the third quarter of fiscal 2011, SIRI reported total revenue of $763 million, up 6% from the 2010 third quarter. Adjusted EBITDA rose 16% to $197 million. Net income increased 54% to $104 million, while free cash flow expanded 22%.

The subscriber base swelled 7% year-over-year to 21.3 million. Net additions in the quarter were 364,004, up 41% from the same quarter the prior year, and the self-pay subscriber base reached an all-time high of 17.5 million, a 7% year-over-year rise. In October 2011, SIRI launched an expanded channel lineup, such as new music, comedy, sports channels as well as Sirius XM Latino -- a suite of Latin channels.

For fiscal year 2012, SIRI anticipates revenue growth of 10%, to more than $3.3 billion, and adjusted EBITDA growth of 20%, to about $860 million.

The company announced last month that it will launch Tiesto's Club Life Radio, the 24/7 commercial-free music channel featuring music by electronic dance music superstar DJ Tiesto.

Of the 12 analysts covering the stock, 75% recommend a buy and 17% suggest a hold. Analysts' average 12-month price target for the stock is $2.28, about 11.6% higher than the current price, according to Bloomberg.

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