NEW YORK ( TheStreet) -- I started covering SiriusXM ( SIRI) last year with a March 2011 article. In the column, I described Apple's growing dominance in the smartphone space and how smartphones would impact consumer choices in content delivery.As wireless Internet availability enters into the world of GM ( GM) and Ford ( F), the need for nonterrestrial delivery will wither. As demand for satellite delivery diminishes, Sirius will reach a point that maintaining the system outweighs the additional revenue gained.
The lack of a screaming buy at $2.15 isn't the same statement as "Sirius isn't a value at any price." In my March 2011 article, I stated writing $2 and $2.50 strike calls would be a good trade because of the limited ability for Sirius to trade above $2.50 relative to downside. Sirius has a fantastic product lineup, and the shares had an impressive run from 2009, but like many trends up and down, became clearly overbought. The sky high price-to-earnings ratio would not support continuing earnings increases in relation to the size of the stock float. The dynamics of a stock float of over 3.65 billion shares creates an ever increasing headwind as the stock price appreciates. Keep in mind that Sirius's annual revenue is about $3.2 billion. In comparison, take a look at Sprint ( S), another stock I follow and have from time to time recommended. When Sprint traded near $2, I recommended it. The ability for Sprint to double is much easier with a smaller float and market cap relative to revenue. Sprint has 20% fewer shares and 10 times Sirius's $3.1 billion revenue. Increasing the bottom line number is obviously much greater with Sprint than Sirius. You don't need to double your money to make an investment a decent one. Both Sprint and Sirius offer the ability to profit. I believe the best way toward profits with Sprint and Sirius is through options. Friday's closing price of $1.85 or less is a buying opportunity with Sirius. Sirius's shares in the last year have lost their over-exuberance and now earnings have caught up to the price once again. At $1.85, the price-to-earnings multiple has fallen into a exceptionally reasonable 18.5. Sirius isn't a buy for a Liberty Media buyout, but if it happens, shares should appreciate significantly. Don't bet on it; a buyout may take longer than most imagine. Ford's recent agreement with Sirius to allow used Ford vehicle buyers a free trial period should create slightly better profits rolling forward. Don't count on a windfall, but it's as close to free money for Sirius as you can get. Most of each new dollar in revenue flows in the direction of the bottom line. In May, I wrote an article suggesting Sirius is oversold at $1.80 with a price target of $1.97. I adjusted the buying zone based on support shifting higher to $1.85 in a follow up. At the current $1.85 price, the downside is limited relative to risk. You can pick up shares at $1.85 and write September $2 calls for a dime each. It lowers your cost basis to $1.65 and, if exercised, the gain is over 20% in about three months. A 20% gain in three months is not easy with most stocks, but with Sirius, it's a real possibility. Using options provide an extra level of comfort, lower volatility, increased odds of success and profit if Sirius doesn't appreciate in value.