Another bullish take on SiriusXM; Update on Intel

1) I'm always on the lookout for extra perspective from readers that might help me change my opinion about a stock...

Here in my daily e-mails, that situation cropped up with satellite-radio company Sirius XM (SIRI) – which I've still been keeping an eye on. To start off, in my October 23 e-mail I noted that:

Berkshire Hathaway (BRK-B) investment manager Ted Weschler has been scooping up the beaten-down shares of Sirius, and now owns 32% of the company.

I've been following Weschler since long before he joined Berkshire and have had the pleasure of meeting him a few times (most recently at the latest Berkshire annual meeting in Omaha, Nebraska after we both ran the 5K race).

He's a super nice guy and a brilliant investor, so seeing him make such a big bet on Sirius caught my eye.

After analyzing Sirius' financials, I didn't like what I saw... so I concluded in that e-mail that "I would avoid the stock."

But as you might recall, one of my readers – John C. of investment firm Lycka Advisors – disagreed and let me share his bullish take on the stock in my October 28 e-mail. I posted his 19-page write-up right here, in which he concludes:

SiriusXM is a provider of curated music, talk, sports and other content (exclusive and unique in many cases). Their subscription-based business model is delivered via a proprietary network of satellite receivers OR internet apps (SiriusXM and Pandora branded). There are SiriusXM receivers in ~ 1/3 of US registered cars and 1 in 7 American adults subscribe.

Over the last two years SIRI has encountered a perfect storm of both technical pressures, due to the unwinding of Liberty Media's HoldCo structure and fundamental headwinds, in the form of plateauing subscriber growth. Not only that, [capital expenditures] will peak (net income will trough) in 2024 as they construct/launch all new satellites into orbit. The combination has left shares of SIRI somewhat orphaned and valued below 98% of US-listed stocks, during a "trough results" year.

I noted then that I wasn't fully convinced by John's argument, but I continued to be intrigued by Sirius' stock.

As such, I wanted to share another bullish take by a reader named Daniel B., who manages a $47 million family equity fund called Somnium Capital Investments. He gave me permission to share his two-page summary, which I've posted right here. As Daniel concludes:

Even though the current market view is that SIRI does not stand a chance in today's market competing against the likes of Apple Music and Spotify, SIRI offers a very stable cashflow opportunity at least until 2030. The stock has been heavily hit following the Liberty Media split-off and ejection from major indices at the same time as it hit its peak investment cycle and worries over subscriber numbers, leading to peak-bearishness.

However, the company's heavy investments in satellites, 360L platform and new talent as well as future monetization possibilities of its spectrum, should provide enough options to stabilize, if not grow cashflow over the next years. In that time, the company's entire market cap will be returned to investors. SiriusXM offers an interesting and very asymmetric opportunity for investors.

Thank you for sharing, Daniel!

I'm always interested in hearing different perspectives and takes on stocks that I discuss. It's part of why I love writing these e-mails and hearing from my wide range of readers. And it fosters a great spirit of discussion.

I'm still not fully convinced on changing my stance on Sirius... but the additional bullish perspective has me interested enough to still keep an eye on the stock.

Meanwhile, if it gets to a point where it looks compelling enough to my team here at Stansberry Research, subscribers to our flagship Stansberry's Investment Advisory newsletter will be the first to know if we think Sirius is a buy.

If you aren't an Investment Advisory subscriber already, you can find out how to become one – and learn how to gain immediate access to our full portfolio of existing open recommendations – by clicking here.

2) Here's another update on a stock I wrote about a few months ago in my September 6 and September 9 e-mails: struggling chip giant Intel (INTC)...

On September 9, I framed my analysis by comparing it to what two other struggling tech giants looked like when their stocks had bottomed:

... as an investor, you want to find the rare situations when a company's stock collapses but its financials remain strong.

It's generally in these situations where I find the best turnaround opportunities, with multibagger upside potential for the stock.

So today, I'll give two recent examples of large tech companies – Netflix (NFLX) and Meta Platforms (META) – whose stocks fell even more than Intel's, but whose financials remained much stronger.

Their strong financials were a major reason why I was pounding the table on both of them back then... but I'm not doing so today in the case of Intel.

After analyzing all three companies' financials, I concluded:

I had high hopes that Intel might be this year's "Netflix and Meta in 2022." But a five-minute look at its financials led me to conclude that it's not... so I'm moving on.

Fast-forward three months, and I wasn't surprised to see that Intel replaced its CEO last week. Here's the Wall Street Journal with more on the story: Intel CEO Pat Gelsinger Resigns After Struggling to Turn Around Chip Maker. Excerpt:

Intel Chief Executive Pat Gelsinger retired abruptly, ending a nearly four-year run that saw the chip maker fall behind rivals in building semiconductors to power the artificial-intelligence boom...

Gelsinger's exit comes in the middle of his multiyear turnaround strategy to build a so-called foundry business manufacturing chips for other companies. At the same time, Intel's stock has underperformed both the market and rivals. Strategic missteps and missing out on the artificial-intelligence boom have combined to reshape the fortunes of the company, which reportedly was a takeover target earlier this year...

Gelsinger had been CEO since February 2021. During that period, Intel's sales are on track to have fallen by nearly a third, its stock has declined 61% and the company lost its spot as the standard-setter in chip technology. During the same period, the S&P 500 index rose 53%. Last month, Intel was replaced by Nvidia in the Dow Jones Industrial Average, a sharp reversal of fortune for the chip maker.

Replacing a failed CEO can be a sign that a turnaround is underway – but can also be a sign of desperation, meaning nothing but a different captain on a doomed ship. Which is the case here?

I tend to agree with this WSJ "Heard on the Street" column from last week: Are Intel's Problems Too Big to Fix? Excerpt:

Pat Gelsinger's quest to save Intel has come to an abrupt end. Whoever runs the storied chip maker next is still going to have to pull off a heroic feat...

Much rides on their success as 18A is the final phase of Gelsinger's plan to have Intel race [through] five so-called nodes in four years (Intel used to spend at least two years on a single node).

A CEO switch so late in that cycle, therefore, naturally raises some eyebrows. "As the standard-bearer for the company's 'five nodes in four years' guiding mantra, Mr. Gelsinger's sudden departure leaves us unsure of the strategic path ahead for Intel," wrote Joshua Buchalter of TD Cowen in a note to clients on Monday. In his own report, Stacy Rasgon of Bernstein said, "We might have expected Pat to at least make it until 18A is out the door (at which point we would see how it stacks up), and as he hasn't, one has to wonder whether his departure foreshadows any negative implications for the health of the process roadmap."

As the column continues, Intel faces other big issues:

Intel's other major problems involve both selling the chips that it makes and finding companies willing to use its factories to make their own. Neither effort is going great at the moment. Intel's foundry business, which handles manufacturing for external clients, has lost more than $11 billion in the first nine months of 2024 – nearly double what it lost in the same period last year. And while the company's stock jumped after its third-quarter report showed data-center revenue beating Wall Street's expectations after four straight quarters of misses, the unit is still generating half the annual revenue it made in 2020, just before Gelsinger took over...

Some think Gelsinger's exit raises the possibility of some sort of deal – perhaps one that separates Intel's product and chip design business from its money-losing foundry arm. But that would be extremely difficult since the $7.86 billion Intel is receiving from the U.S. government through the Chips Act requires the company to retain at least 50% ownership of its fabs. And any foreign buyer is unlikely to pass muster with regulators given Intel's position as the largest U.S.-based chip manufacturer.

And as the article concludes:

Intel, in short, has no easy options, and even few very difficult ones. Chip manufacturing is a complicated process that requires years of research and development on each process and product. Much of the company's current predicament stems from strategic missteps made well before Gelsinger returned to the company. "We think the potential for a new strategy raises some optimism – but Intel is in a difficult position and the path forward will be difficult no matter the leadership," wrote Chris Caso of Wolfe Research on Monday in a note to clients.

Even with nearly two-thirds of its market value gone under the last CEO, Intel's new boss will have a surprisingly tough act to follow.

After I last wrote about the company on September 9, INTC shares popped as much as about 40%, but have now pulled back and haven't even kept up with the S&P 500 Index since then – as you can see in this chart:

 As an American, I'm rooting for Intel. And if I were forced to go long or short the stock, I would definitely go long.

But the beauty of investing is that I'm never forced to do anything – and Intel falls into that category. I still think this stock is better off just avoiding.

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.