2012 Offers Huge Auto Opportunity If Valuations Can Be Overcome (SIRI, P, F, M)

2012 may seem like a resurgence of the banking sector is afoot, but what about the resurgence of the U.S. auto industry.  The age of the consumer fleet is at a record above 10 years on average now and there are some serious growth drives (no double pun intended).  Sirius XM Radio Inc. (NASDAQ: SIRI) is managing to grow in good times and bad, and Pandora Media, Inc. (NYSE: P) has actually performed above and beyond all expectations so far in 2012.

While we have some valuation concerns on SIRIUS and while we have some concerns about the future of some of the satellite radio’s top media figures posing a talent departure risk, the news this week that the entire United States car fleet is at a record age is helping to drive Sirius XM bulls.

The same argument can be made for Pandora Media, Inc. (NYSE: P), and that can also be a threat to Sirius XM, but so far this remains a wild card.  Pandora’s stock is still at only about half of its post-IPO peak in 2011 even though it has managed to score several key auto-maker option pacts ahead of the Consumer Electronics Show.

Ford Motor Co. (NYSE: F) and General Motors Company (NYSE: GM) also have a huge opportunity ahead.  Ford has even reinstated its dividend sooner than expected.  Car buyers are not ramping up hybrid buying due to cost, but many of the new cars sold will in fact be Sirius XM subscribers.  Some may even be Pandora subscribers.

Last night Jim Cramer even talked up the auto parts sector on CNBC’s MAD MONEY because of the coming car sales boom.  It turns out that even the most frugal of the frugal can only drive an old car for so long.  Eventually, the cost of maintenance and repairs exceeds the cost of a new car even if the car is not quite what a buyer would prefer to drive.  After all, what good is it to have a car with a $30,000 new sticker price  that is 80% or 90% devalued for trade-in if you have to keep putting in $200 to $500 every three months in repairs and band-aid work?

SIRIUS shares closed out 2011 at $1.82, and now shares are up 18% even though today’s $2.15 price is a tiny loss.  Here are some year-to-date comparisons for 2012 so far: Pandora is up 29.5% YTD,  Ford is up almost 17% YTD, and GM is up 21% YTD in 2012.

JON C. OGG