Warren Buffett hasn't seen a lot to like in the stock market lately.
The Oracle of Omaha has sold more stocks than he bought in each of the last seven quarters reported by Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B). That includes a massive sale of around $75 billion worth of Apple stock in the second quarter and over $10 billion in Bank of America shares over the last three months. That pattern makes it likely the third quarter was the eighth straight quarter of net sales for Buffett and his team of portfolio managers.
But Buffett (or one of his fellow managers) is buying at least one stock for Berkshire Hathaway shareholders based on required filings with the SEC.
Image source: The Motley Fool.
Buffett's typical buying behavior has changed
Over the last few years, Buffett had some predictable stock purchases, but even those might not be so reliable in today's market.
Despite reducing or selling out his exposure to equities in Berkshire's portfolio, Buffett could be counted on to repurchase shares of Berkshire Hathaway over the last six years. But share buybacks may be less appealing at Berkshire's current price, which has climbed 30% year to date.
Buffett didn't buy back a single share in June, and the stock has consistently traded higher in the third quarter. That could lead to the first quarter where Buffett didn't buy back a single share since the board of directors changed the repurchase authorization in mid-2018. Investors will have to wait until Berkshire's Q3 earnings report in early November to know for certain.
Buffett has also given the cold shoulder to another stock he's consistently bought over the last few years. Any time Occidental Petroleum saw its share price dip below $60 per share, investors could reasonably expect a filing showing Berkshire Hathaway had purchased more of its common stock. Despite plunging oil prices in Q3 leading to a two-year low stock price for Occidental, those SEC filings never materialized.
It could be that Buffett is content with a 27.3% stake in the company at this point. He mentioned that he has no interest in taking a controlling stake of Occidental, and he praised CEO Vicki Hollub on multiple occasions, indicating he believes his investment is in good hands.
Just one SEC filing since the end of June showed that Berkshire added to an existing position. In October, Berkshire Hathaway bought $87 million worth of Sirius XM(NASDAQ: SIRI) shares.
Berkshire now owns a huge portion of this company
Berkshire Hathaway had previously owned shares of Sirius XM, but it started acquiring its stake in the company in earnest late last year. The vast majority of the stake was acquired through a position in the Liberty SiriusXM tracking stock, which aimed to track Liberty Media's stake in the satellite radio operator. The two stocks merged earlier this year, leaving Berkshire Hathaway with over 30% of the total outstanding shares.
Sirius XM is the only satellite radio operator in the United States. Unlike terrestrial radio, Sirius XM makes the bulk of its revenue from subscriptions instead of advertising. Its method for attracting new subscribers primarily relies on free trials with new car purchases. Over the years, it's managed to attract about 33 million paid subscribers, and it counted 7.4 million free-trial listeners as of the end of the second quarter.
Its free-trial strategy and focus on exclusive content takes care of much of the marketing Sirius XM needs, which helps it keep operating expenses low. On top of that, Sirius XM benefits from lower music royalty rates than on-demand streaming services, paying just 15.5% of gross revenue for music licenses. On-demand streaming pays about twice as much.
As a result, Sirius XM produces steadily rising operating profits as its subscriber base grows. While its subscriber base has stagnated recently, the company remains nicely profitable.
There's no indication that Sirius XM is facing a mass exodus of subscribers, but the stock appears to be trading as such. Shares are currently priced at just over 8 times analysts' estimates for 2025 earnings. Its enterprise value is just 6.8 times management's forecast for 2024 EBITDA.
With shares trading at such a low valuation and Sirius XM's simple-to-understand business model, it's a prototypical Warren Buffett investment.
A warning from Buffett
As of this writing, Sirius XM is the only stock we know for certain that Buffett and his team bought in recent months. That speaks to a broader warning from Buffett about the current stock market.
Sirius XM is a relatively small company with a market cap just over $9 billion. That won't really move the needle for Berkshire Hathaway (and its nearly $1 trillion market cap), even if it acquires the entire company.
But Buffett hasn't found much else to put Berkshire's cash toward. The bigger companies that could move the needle likely aren't attractive right now (in Buffett's eyes) from a valuation standpoint, which explains why he's been a net seller of stocks.
But for everyday investors, i.e. 99.99% of the world, there are a ton of opportunities. Sirius XM may be just one of many small- and mid-cap stocks investors should look to add to their portfolios in the current market.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Adam Levy has positions in Apple. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
