2 Bankers Recommend 2 Flavors of Sirius XM: 3 Things You Ought to Know

It's been a busy couple of days for investors in Sirius XM Radio , and its Liberty SiriusXM tracking stocks over at majority shareholder Liberty Media

Yesterday, Deutsche Bank Macquarie

Who's right? Who's wrong?

Here are three things you need to know.

Image source: Sirius XM Radio

Thing No. 1: This is a tough call

According to our stats here at Motley Fool CAPS

Thing No. 2: Deutsche likes Liberty Sirius' shiny new shares

When comparing Sirius stock to the Sirius tracking stock created by its majority shareholder, Deutsche sees more value in the latter. Quoting from today's StreetInsider.com

Put more simply, Deutsche sees investors undervaluing shares of Liberty SiriusXM. This may partly owe to a lack of clarity on when Liberty Media will ultimately mop up the last few shares of Sirius XM that it does not yet own (Liberty currently owns about 64% of Sirius shares outstanding). Investors may also feel uncomfortable owning a tracking stock, rather than Sirius's actual stock.

Thing No. 3: Macquarie prefers tried and true to shiny and new

After all, Macquarie cites the same concern over timing. Although "Liberty's intentions are crystal clear: they remain enthusiastic owners of Sirius XM (now ~64%)," and although "LSXMA tracks the performance of Sirius XM," Macquarie admits to having doubts as to "when and how" Liberty will finally finalize its ownership of all of Sirius. The Australian analyst also worries that Liberty might have to pay a high price -- perhaps much higher than the 5% premium to Sirius' share price that it has bid in the past -- to finalize its takeover.

When you consider that such a premium would increase the value of Sirius XM stock, Macquarie believes an investor is better off just buying "pure-play Sirius XM Radio," sitting tight, and awaiting the eventual buyout. Why waste time chasing tracking stock discounts that might prove illusory, when a profit from owning Sirius is essentially certain?

Final thing: Valuation

And I have to say, that argument makes a lot of sense. As I've already pointed out, from a valuation perspective, Sirius XM stock looks cheap S&P Global Market Intelligence

That works out to a 0.65 price-to-free-cash-flow-to growth ratio, which makes Sirius XM stock a bargain in my book.

Now, is Liberty SiriusXM a better bargain? It may well be. After all, according to S&P Global data, Liberty SiriusXMstock has an implied market capitalization of just $7 billion, which is less than half of Sirius XM's $19.8 billion market cap, despite supposedly representing ownership of much more than half Sirius XM's stock.

Personally, I suspect that both stocks are good bargains at today's prices. But Sirius XM is the easier stock to understand, and for that reason, I'm more comfortable backing Macquarie's recommendation of Sirius XM stock.

The article 2 Bankers Recommend 2 Flavors of Sirius XM: 3 Things You Ought to Know

Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above. You can find him onMotley Fool CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 309 out of more than 75,000 rated members.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days considering a diverse range of insights disclosure policy