Are Hedge Funds Right in Backing Off Sirius?

When the hedge funds go, shareholders usually follow suit. After several high-profile funds removed Sirius XM Radio (NASDAQ:SIRI) from their portfolios late last year, a similar migration could occur from investors on all fronts. While positive auto industry news is preventing some bearish investors from selling off short, the news for Sirius looks grim.

After the number of hedge funds holding Sirius dropped from 46 to 35 in a single quarter at the end of 2012, analysts are curious about how the satellite radio provider’s stock would hold up. Sirius looked headed for a bump in its stock price following positive auto industry reports. Between a potential increase in overall car sales, new subscriptions and the resolution of leadership issues, the hedge funds’ moves could seem counter-intuitive.

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However, the story does not end there. Short sales leveled off only after an unprecedented level of investors dropped Sirius holdings in recent months. Perhaps buoyed by the positive auto sales reports from January and February, shareholders stopped selling in time to keep the stock prices stable…

The positive news also extends to the leadership within the company. Interim CEO Jim Meyer has the backing of Liberty Media (NASDAQ:LMCA), the company holding a controlling interest in Sirius. Additionally, moves like picking up Glenn Beck are viewed as useful (if not stellar) by analysts who recognize the importance of big names coming to the station for the long term. The turmoil following Liberty Media’s purchase of more Sirius shares last year has settled down dramatically.

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Investors are right to be skeptical about Sirius’s ability to weather the storm while hedge funds continue to depart this once-notable performer. Analytics reports showed a decrease in online searches for Sirius in the previous months, making the positive auto industry reports appear less relevant. Would not new car buyers be interested in learning more about Sirius if they planned on subscribing? This news, along with word that hedge funds “smart money” dropped precipitously, should lead investors to think twice before adding shares of Sirius to a portfolio.

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