Stocks are rolling this month. The major market indexes hit all-time highs on the first trading day of March. There are plenty of high fives to go around. Let’s take a look at some of the “down low — too slow” investments that could be bounce back here.
Sirius XM (SIRI -2.34%) and Baidu (BIDU -3.17%) aren’t crashing the bull party. Both stocks are trading at least 35% below their 52-week highs. They are all considerably lower than their all-time highs. March is still young. Let’s explore some of the ways that these three out-of-favor investments can move higher this month.
1. Sirius XM
It’s easy to see why Sirius XM isn’t a hot stock right now. It’s now been 18 years since Howard Stern rattled the airwaves of terrestrial radio by moving to Sirius. It was 16 years ago that Sirius and XM received regulatory approval to join forces. It’s been a long time since satellite radio turned heads.
A look at Sirius XM’s recent performance makes it clear why Sirius XM is no longer on the radar of most growth investors. Organic revenue growth has been limited to single-digit upticks for seven consecutive years before turning negative in 2023. Yes, Sirius XM’s top line declined 0.6% last year. Guidance it initiated last month calls for a 2% slide in revenue for all of 2024. It doesn’t mean that the satellite radio monopoly is destined for an uninspiring finish like a fading album track. There’s another side to the Sirius XM story.
Image source: Getty Images.
Sirius XM has been pronounced dead before. Remember when the “connected car” was going to be the end of Sirius XM? Smartphone users able to stream their free or nearly free apps through their dashboards may have been a challenge for a premium subscription service like Sirius XM, but it continued to grow. Remember 2020, when the pandemic had us spending more time at home and less time in our cars? It would’ve been easy for subscribers to cancel the platform then, but revenue kept inching higher and churn was held surprisingly in check.
It’s 2024. Companies are calling workers back to in-office work. If the economy holds up and borrowing costs continue to contract it should lead to a boost in car sales, the biggest driver of new Sirius XM subscriptions.
Along the way, Sirius XM has gone from being a growth investor darling to one that is setting off radars in the value and income investing camps. The stock is now trading for 13 times trailing earnings. Its current yield is at an all-time high of 2.5%, a payout that will become more attractive if fixed income rates continue to move lower this year. It’s been topping $1 billion in annual free cash flow for years, and it’s been using that to aggressively repurchase its stock.
Sirius XM isn’t fading out as a media stock. It’s time to pump up the volume.
2. Baidu
There isn’t a lot of love for Chinese stocks from stateside investors these days. The geopolitical risks are certainly heightened right now, but it doesn’t mean that the country’s largest search engine isn’t a bargain.
Like Sirius XM, Baidu is also trading for just 13 times trailing reported earnings. If we switch to adjusted earnings, Baidu’s profit multiple drops to just 9. Remember when Baidu was trading at a juicy premium to the leading global search engine that it defeated on its home turf? Times have changed.
Baidu did struggle with flat revenue growth in 2020 and again in 2022. It bounced back last year, posting positive year-over-year gains in all four quarters with a 9% increase in net revenue for all of 2023. This is an even better bottom-line growth story. Baidu has trounced Wall Street profit targets lately, beating analyst estimates for 23% for four consecutive quarters.
The irony here is that while U.S. investors have been bidding up artificial intelligence to stratospheric valuations, Baidu has been an AI leader for years and it’s being ignored. Baidu has leaned on AI to be a pioneer in everything from self-driving cars to helping provinces control water pressure levels. The term “AI” was used 62 times in last week’s earnings call.
If you can stomach the risks of buying into a Chinese tech juggernaut — and they are admittedly high risks and you’ll need to have a contrarian streak in you — picking up Baidu for just 8 times next year’s adjusted earnings estimate seems like a good deal. If you’re looking for a cheap AI play, start looking at the other end of the planet.
Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Baidu. The Motley Fool has a disclosure policy.
