Warren Buffett, the renowned investor and CEO of Berkshire Hathaway, has made a surprising move by investing heavily in a unique stock-split stock. While Buffett is known for his long-term investment approach, his recent purchases have raised eyebrows among investors.
Buffett’s interest lies in satellite-radio operator Sirius XM Holdings, a company that has announced a reverse stock split. Unlike most reverse splits, which are aimed at preventing delisting, Sirius XM’s reverse split is part of its merger with Liberty Media’s Sirius XM tracking stock. This merger will create a single class of outstanding shares.
Sirius XM’s competitive advantages have likely attracted Buffett’s attention. As the only licensed satellite-radio operator, the company enjoys exceptional subscription pricing power, giving it an edge over its competitors. Additionally, Sirius XM generates a significant portion of its revenue from subscriptions rather than advertising, making its cash flow more predictable.
The company’s cost structure is also relatively stable, with fixed transmission and equipment costs. Furthermore, Sirius XM’s stock is historically undervalued, trading at less than 8 times forward-year earnings during the June-ended quarter. This, combined with a 3.7% dividend yield, makes it an appealing investment opportunity.
Buffett’s investment in Sirius XM comes at a time when he and his team have been selective about their purchases for nearly two years. Despite being net sellers of equity securities for the past seven quarters, Buffett has shown confidence in Sirius XM’s potential.
While this move may seem contradictory to Buffett’s long-term investment philosophy, it highlights the unique qualities of Sirius XM and its potential for growth. As one of the most respected investors in the world, Buffett’s investment decisions often attract attention and can influence market sentiment.