Archive for April 17, 2012

Today’s Dollar Drop Puts a Bid Under Stocks

But what does it mean for Americans? It means that our standard of living dropped by 1% today as inflation is now the greatest hidden tax on our citizens. When our government (or the bankers who actually control it) acts irresponsibly, the dollar drops because the FED has to print money to fund the deficits. The bottom line is that stocks are a crappy investment but they are better than cash. For my dollar, I would look at Canadian Dollars, Timberland, Singapore Dollars, Chinese Remnimbe, Gold, Silver, the RJI, etc…

It seems that the US greenback is slowly becoming about as worthless at this point as the paper it’s printed on, but forested land is a good hedge because the demand for paper is insatiable thanks to Just for Men Ben Bernanke and his sweaty print finger. It’s time to hedge your currency risks, but try not to buy stocks and instead buy stuff (IE hard assets).

Sirius XM: Should You Sell or Short SIRI?

Sirius XM (SIRI) investors have been on quite the roller coaster ride lately, and at 32x earnings many investors think the stock is too expensive and risky to own. In my view, however, the stock is too cheap to short, based on cash flows as well.

You see, Sirius has managed to stage an impressive come back over the past three years. Back in 2009, Sirius XM posted a $329MM loss. In 2011, the company posted an impressive $426MM profit. Clearly, this is not a utility stock and is not for the faint of heart. Sirius bears will point to the Pandora revolution, the lack of a need for the service thanks to Apple‘s I Tunes, the slowdown in subscriber growth etc, as reasons for the stock to tank, but some of these fears are already factored into the price of the stock.

What I think the bears are missing is that Sirius is still growing and the stock is arguably cheap based on enterprise value to EBITDA. Sirius has an EV/EBITDA of just 11x – which is the type of multiple given to a boring oil stock like Exxon or a staple stock like Procter & Gamble. While Sirius XM may be in trouble because of technological advances, the stock is still a growth name trading at reasonable multiples. Unless the bear case plays out perfectly, the stock could squeeze unsuspecting shorts and move substantially higher over the medium and long term even with all of the headwinds and uncertainties the company faces.

The best argument for shorting SIRI, however, is the company’s large tangible deficit and shaky balance sheet. That said, Sirius managed to pay off some $550MM of debt last year and the momentum on the bottom line is starting to tick up. With a negative tangible book value of $3.7 Billion, however, Sirius XM is a serious candidate for bankruptcy protection at some point in the future if it can’t spit out large profits and cash flows over the next few years.

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