Think about Howard Stern. I'll wait.
Satellite radio, specifically Sirius and XM Radio are definitely the flavors of the month. Howie has signed on at Sirius for a budget of $500 mill. The company needs over a million subscribers (currently at 800k) to make a go of the deal. For its part, XM has 2.5 million paying devotees. For the uninitiated, with Sirius' and XM's market caps of $8 billion each, that's a slug o' market value per subscriber. Each company has whacking debt and is locked in an expensive and less than subtle battle for dominance. And not making anything close to a profit. As a matter of fact, analysts' estimate for fiscal 2005 is a per share loss of nearly 50 cents for SIRI and a whopping $2.55 for XM.
While the Howard effect helped both stocks, long term investors should be wary of diving in unless they share the vision. And that vision needs a lot of tweaking– fast– to justify the valuations. The battleground will be subscribers and the currency will likely be ever decreasing monthly costs. And, hopefully, no more competitors.
These babies are one of those types of sectors that were mo-mo a few years ago. Over the very long term, could these go the way of major entertainment networks? Possibly. Likely, in my opinion, as valuations become less ridiculous, they could be bought by conglomerates that want the exposure. And that's about all anyone would buy them for. And I doubt that any market premium would be overly generous.
If you are a trader, there will likely be further corporate moves by each that will be solely an attempt to trump the other. In that there could be some trading opportunities as long as you're as fast as a school of tuna scared by a shark.
If you share the vision of satellite winning over traditional radio, dip a toe in. Just be on the lookout for sharks. One wrong move and that metaphoric toe will be gone.
For the record, I'd take Howard's place for less. A lot less.
Here's some fun. Boring is good. And not without surprises. Did you know chocolate is now being hailed as a cough remedy? In that vein, investors looking to walk on the less than wild side, but make some serious coin should look at dull, old Hershey's. The chart below is short term, but be aware that since 1994, Hershey's is up 6-fold and with the S&P up 500 percent in the same period, everyone's favorite caloric purveyor rocketed over 1200 percent. Boring my derriere.
Is the run over? Well, since growth has been virtually nonstop over the last decade and it cruised, profitably, through the bubble, I'm guessing no. Do I feel a cough coming on?
Hershey just grabbed most of the macadamia nut market by scooping Mauna Loa of Hawaii for $130 mill. The company makes $80 mill and owns 40 percent of that specialty nut market. I'm still waiting for the boring part. Hershey trades at a very respectable 23 times earnings and looks to stay at about that level for the next couple of years.
The point is this. By overlooking the obvious, Hershey-type stocks, for the go-go mo-mo flavor of the month debs like the satellites, we might make less money in the short term, but the tortoise tends to win in the long run.
And this is the best part. If you want a wake-up call to get an early shopping start on Friday, as well as pertinent shopping tips, you can call Hershey at 1-800 8Go-Nuts and arrange.
Now that's marketing. And definately not boring.
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