Every year, around 40,000 investors flock to Omaha, Nebraska, for Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) shareholder meeting. They make this journey for the opportunity to hear CEO Warren Buffett speak about stocks, the U.S. economy, and his investment philosophy.
While investors appreciate Buffett's open-book approach, it's his vast outperformance of the benchmark S&P 500 that's the hook. Over a span of almost six decades, he's overseen a greater than 5,500,000% cumulative return in his company's Class A shares (BRK.A). This means bargains can often be found hiding in plain sight within Berkshire's portfolio.
Arguably the best stock to buy in November within the 43-stock, $312 billion portfolio Warren Buffett oversees at Berkshire Hathaway is Wall Street's most prominent reverse split of 2024.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Stock-split stocks have taken center stage
A stock split is a tool available to publicly traded companies that allows them to cosmetically alter their share price and outstanding share count. These changes are superficial in the sense that they don't affect a company's market cap or its underlying operating performance.
Splits come in two varieties, with investors overwhelmingly favoring one over the other. Forward splits, which are designed to reduce a company's share price to make it more nominally affordable for everyday investors, are the most popular of the two. This type of split is conducted by high-flying companies that are out-innovating and out-executing their competition. Out of the more than one-dozen high-profile companies that have completed a stock split in 2024, all but one have been of the forward variety.
On the other end of the spectrum is reverse stock splits, whose purpose is to increase a company's share price and reduce its outstanding share count by the same magnitude. This type of split is often completed from a position of operating weakness by companies whose shares are in danger of delisting from a major stock exchange.
Yet, the one stock in Warren Buffett's portfolio that stands out as a no-brainer buy this month is a company that recently completed a reverse split. I'm talking about satellite-radio operator Sirius XM Holdings(NASDAQ: SIRI).
This highly anticipated reverse split is unique
In December, Sirius XM announced plans to merge its common stock with that of Liberty Media's Sirius XM tracking stock, Liberty Sirius XM Group, which had three classes of shares. Liberty Sirius XM Group shares rarely tracked the performance of Sirius XM's shares all that closely, which made for confusing arbitrage opportunities when none should have existed.
The merger of these share classes was completed following the close of trading on September 9.
In addition to completing this merger and creating one cohesive class of common stock, Sirius XM announced in mid-June that it would conduct a 1-for-10 reverse split upon consummation of its merger with Liberty Sirius XM Group.
Although I noted that reverse splits are usually designed to avoid delisting, what makes Sirius XM's split so unique is that it was in no danger of having its shares booted from the Nasdaq exchange. Rather, Sirius XM's stock had been stuck below $5, on a pre-split basis, for a good portion of the last two years, and institutional investors sometimes avoid stocks trading below $5 per share. By reverse-splitting its stock 1-for-10, Sirius XM lifted its share price to the mid-$20s and put itself firmly back on the radar of institutional investors.
But enough about the uniqueness of Sirius XM's stock split -- let's dig into why it makes for such an amazing Buffett stock to buy in November.
Image source: Getty Images.
Sirius XM is a screaming bargain for value and income seekers
Warren Buffett tends to be a big fan of businesses that possess competitive moats which can't be disrupted, and Sirius XM certainly delivers.
What might be its most front-and-center competitive edge is that it's the only licensed satellite-radio provider. Though it does still face competition for listeners from traditional radio operators, being the lone satellite-radio company affords Sirius XM a sizable amount of pricing power. With Spotify Technology recently upping its subscription price, it wouldn't be a surprise if Sirius XM followed suit.
A subtler competitive advantage for Sirius XM, but perhaps the one that packs even more importance than being the lone licensed satellite-radio operator, is its revenue diversity. While terrestrial and online radio providers generate most of their revenue from advertising, Sirius XM has brought in 77% of its net sales from subscriptions through the first-half of 2024.
Though ad-driven operating models fare well during lengthy periods of economic expansion, traditional radio operators can also be exposed to significant downside during slowdowns and recessions. Since Sirius XM's subscribers are less likely to cancel their service than businesses are to reduce their marketing budgets during a recession, Sirius XM's operating cash flow is often steadier than its peers.
Sirius XM brings some degree of cost transparency to the table, as well. While royalty expenses and talent acquisition costs will fluctuate from one quarter to the next, transmission and equipment costs are fairly static, regardless of how many subscribers Sirius XM has. If the number of subscribers increases over time, this would represent a recipe for margin expansion.
Beyond well-defined competitive advantages, Warren Buffett also loves a good value and a hearty capital-return program.
As of the closing bell on Oct. 25, shares of Sirius XM were valued at just 8 times consensus earnings per share (EPS) for 2025, which is just a hair above its all-time low forward EPS multiple since going public in 1994. What's more, Sirius XM is dishing out a robust 4.1% yield.
Whether you're a value or income seeker, Sirius XM Holdings is ripe for the picking in November.
Don’t miss this second chance at a potentially lucrative opportunity
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Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of October 28, 2024
Sean Williams has positions in Sirius XM. The Motley Fool has positions in and recommends Berkshire Hathaway and Spotify Technology. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
