Key points
- Sirius
- One reason for the favorable valuations given to the stock’s multiples could be its high short-term interest.
- With the recent rallies and Buffett’s seal of approval, a massive campaign to cover short positions could fuel new highs for this stock.
- 5 stocks we like better than GameStop
Only a handful of individuals in history can nod their heads when others present them as having a sort of Midas touch, where everything they see seems to turn to gold. Warren Buffett can be considered the Midas of the stock market, where every stock he picks is almost presupposed to be a value. sure to win.
And as a value investor, Buffett understands that going against market consensus usually produces the biggest gains. Famous for avoiding technology stockssince he does not invest in what he cannot understand, he did find one worthy of mention in space for a valuable play in SiriusXM NASDAQ:SIRI.
The year 2023 is coming to a close and one sector has clearly outperformed the broader S&P 500 index, the SPDR funds for certain communication services sectors NYSEARCA: XLC. Taking his Price Action compared to the S&P, you’ll notice a massive 24.7% outperformance over the year, and that’s why Buffett even started looking at Sirius XM.
Play catch-up
Sirius XM stock has underperformed both the communications sector and broader markets, creating an opportunity for Buffett to begin developing a Amicable purchase in it. On average, the Broadcasting & Television industry is trading 77.6% off its 52-week high prices, where Sirius XM is once again lagging behind.
Because it is trading 69.0% off its 52-week high today, Sirius XM stock is considered to be in a bear market, according to Wall Street’s definition, which is a decline of 20 .0% or more compared to high prices. If the price action constitutes a market consensus, Buffett is in effect betting against it for a while. big swing by proving them wrong.
Now, there are other ways the market can quietly agree with Buffett, especially when breaking the industry. This time you will look at the forward price-to-earnings ratio, which is the market’s way of assigning value to the future. earning potential of a stock.
Given that Sirius As the saying goes: “It has to be expensive for a reason.” What is this reason? Well, that’s a question for Buffett crystal ball.
Analysts don’t see it either, because profits growth expectations are set at 3.2% for the next twelve months. With a price target priced at $5.0 per share, there is an implied decline of 8.2% from today’s prices. So what’s the reason the stock is rising so aggressively?
A rally of nearly 32.0% over the past month could be just the start of what’s to come quickly for this stock.
The bears will run
Do you remember all the confusion around Stoppage of play NYSE:GME mania in 2021? Hedge fund giants were burned by a gang of Reddit rebels who were pumping stocks and sending them to historic highs month ; the reason was not because Wall Street had found the next unicorn company, but because of its short-term interest.
So listen, when stocks have high short interest as a percentage of their float… woah woah, okay, here’s what all that means. Shorting a stock involves a complex process of borrowing shares, selling them, buying them back later, and returning them.
Basically, you have to pay for something with money you don’t have, so you ask your friend, “Hey buddy, can I borrow your dollar?” I’m short a few dollars and have to pay something; I’ll cover you (reimbursement) tomorrow.”
You are now “out” of the dollar your friend gave you, and you gave that dollar to pay, so now you have to pay your friend back. To repay, you have to get a dollar from the market to return it and close your loan, right?
What happens if thousands of people do this and when it comes time to repay, thousands of dollars are required to be able to repay? This request will cause the price of the dollar to rise.
The same thing happens to stocks, and MarketBeat allows you to check the level of short positions on all stocks so you can spot opportunities where strong demand may arise to close these short positions. With Sirius XM, 28.5% today short interest as a percentage of all stocks puts the stock at risk of a massive rally.
Now that Buffett has put his stamp of quality on the stock, a continued rise in its price could trigger a wave of short-selling to close out their position, creating massive demand for the stock and fueling a similar trend. larger gathering. Once again, Buffett is called Midas, the stock picker.
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