BusinessWeek Weighs in on Sirius
MAY 26, 2006
Five for the Money
By Marc Hogan
Baby Stocks with Room to Grow
"What do Sirius Satellite Radio, TiVo, Playboy, and Taiwan Semiconductor have in common? Their shares trade under $10
Americans have always had a love affair with low prices. What's not to like about grabbing a cheeseburger for a dollar at McDonald's (
MCD ), or a bottle of soda for 50 cents at Wal-Mart (
WMT )? In the investing world, there's a similar psychological appeal to stocks that trade for less than $10 a share. A modest share price has advantages. The standard unit for stock transactions is a round lot, or 100 shares. Any order that can't be broken up into round lots is called an odd lot, and can lead to extra fees. Still, savvy investors know that low-priced stocks aren't necessarily cheap.
That's why investors and analysts spend so much time studying measurements to assess a stock's valuation. The old saw -- some things are cheap for a reason -- always holds true. Of course, the whole point of bargain-hunting is finding diamonds in the rough. This week's Five for the Money looks at stocks with attractive prospects and share prices below $10. Keep in mind, though, that these stocks carry higher risk than other, more established names. So even though the pricetag may tempt you, think carefully before putting any of them in your cart.
1. Listen to the stars.Howard Stern for $100 million a year? That probably doesn't sound like a steal. But Sirius Satellite Radio (
SIRI ), the radio operator paying the shock-jock's salary, could be a good buy for just a few bucks, some analysts say. Shares in the New York-based company were trading at $4.23 on May 25. Sirius shares hit a 52-week low of $3.60 on May 24 after larger rival XM Satellite Radio (
XMSR ) cut its forecasts for full-year subscriber growth (to 8.5 million subscribers from 9 million) and revenue amid soft retail sales of satellite radios in the second quarter. Sirius reiterated its outlook for more than 6.2 million subscribers by the end of 2006, and says it may book its first quarter of positive cash flow as early as the fourth quarter. Both stocks have skidded more than 40% this year, following double-digit percentage losses in 2005.
Sirius' depressed price means investors can now tune in for cheap, some analysts say. In a Mar. 8 report, Standard & Poor's analyst Tuna Amobi projected Sirius's subscriber rolls, which at last count was around 3.3 million, will swell to 9.8 million by the end of 2007, helped by Stern's arrival in January, 2006. "We expect a significant rampup in the automotive channel over the next two years, and see retail sales increasingly benefiting from new portable products," wrote Amobi, who has a strong buy recommendation on the stock. Of the 33 analysts covering Sirius, 14 say buy, only one says sell, and the rest fall somewhere in the middle, according to data from S&P Equity Research. "
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