There’s probably no billionaire money manager who draws more attention on Wall Street than him Berkshire Hathaway‘S (NYSE: BRK.A)(NYSE: BRK.B) chef, Warren Buffett. The rightly dubbed “Oracle of Omaha” has guided his company’s Class A shares (BRK.A) to mouthwatering total returns of more than 5,600,000% since he became CEO nearly six decades ago.
Following Buffett’s coattails has been a surefire long-term investment strategy. Mirroring its trades is made easy thanks to the required Form 13F filing with the Securities and Exchange Commission (SEC).
No later than 45 calendar days after the end of a quarter, institutional investors with at least $100 million in assets under management must file Form 13F with the SEC. This filing provides a quick snapshot of what stocks Wall Street’s top money managers are buying and selling – and none are expected to earn more 13F each quarter than Berkshire Hathaway.
Over the past two years, Buffett and his team have been decisive net sellers of stocks. Based on Berkshire Hathaway’s seven quarters of cash flow statements (October 1, 2022 through June 30, 2024), Buffett and his top investment aides, Todd Combs and Ted Weschler, sold nearly $132 billion more in stocks than they ever had. have bought.
While no Warren Buffett stock has seen as much of a rise as Berkshire’s No. 1 stock, Apple (NASDAQ: AAPL)the Oracle of Omaha finds value in Wall Street’s most prominent reverse stock split stock of 2024.
Amid Warren Buffett’s sell-off, the top spot was Apple meaningful reduced. Over a three-quarter period from October 1, 2023 to June 30, 2024, Berkshire’s stake in Apple fell by more than 515 million shares, or 56%, to exactly 400 million shares.
Good-natured profit-taking could be the catalyst that prompted Buffett to call the cash register. At Berkshire Hathaway’s annual shareholder meeting in early May, he opined that the corporate tax rate was likely to rise in the future. Because his company made a huge unrealized gain in Apple, he suggested that capturing some gains now at a lower tax rate would ultimately be viewed favorably by Berkshire Hathaway shareholders.
To further reinforce this point, Berkshire’s executive has continued to praise Apple’s business even as he has significantly downgraded his company’s No. 1 ranking. He appreciates Apple’s strong brand name and the loyalty of its customer base.
Moreover, Buffett is a big fan of what CEO Tim Cook has done for Apple. He oversees a multi-year transformation designed to promote Apple’s higher-margin services segment and has led the largest stock buyback program of any publicly traded company. Since starting its share buybacks in 2013, Apple has repurchased $700.6 billion in common stock and reduced the number of shares outstanding by 42.2%. This has had a decisively positive impact on the company’s earnings per share (EPS).
But despite all these positive developments, Apple’s growth engine has stalled. Sales of physical devices, including iPhone, iPad and Mac, have been weak over the past two years. If a growth company’s sales stagnate, it can expose its valuation premium.
When Berkshire Hathaway’s brightest investment minds, including Buffett, first bought Apple shares in the first quarter of 2016, they were valued at between 10 and 12 times trailing-12-month (TTM) earnings per share. Today, Apple is valued at nearly 36 times TTM EPS, a level that an ardent value investor like Warren Buffett would struggle to support — especially with the company’s revenue remaining in neutral.
The wide selling of the Oracle of Omaha also hints at the lack of value on Wall Street. This is one of the most expensive stock markets in history, and Berkshire’s record $276.9 billion pile clearly indicates that Buffett and his team are struggling to find attractive deals… with one exception.
Amid Warren Buffett’s record selling, there’s one stock he and his team can’t stop buying. Interestingly, it’s also the most prominent company to do a reverse stock split this year. I’m talking about a satellite radio operator Sirius XM Holdings (NASDAQ: SIRI).
In December, Sirius XM announced plans to merge with Liberty Media’s Sirius XM tracking stock, Liberty Sirius XM Group. Liberty Media was the majority shareholder in Sirius XM, but the three classes of tracking stock rarely matched the performance of Sirius XM’s common stock. Combining these shares into one class eliminated this confusion.
Meanwhile, the completion of a 1-for-10 reverse split lifted Sirius XM’s stock price from the mid-$2s to the mid-$20s after the merger. While most reverse splits are undertaken from a position of operational weakness and are necessary to avoid delisting from a major stock exchange, Sirius XM was in no danger of delisting. This split was solely intended to get the stock back on the radar of leading money managers who would otherwise avoid stocks trading below $5 per share.
Over the past year, Buffett and his team have increased their holdings in two share classes of Liberty Sirius XM Group stock and Sirius XM Holdings. Based on a Form 4 filing with the SEC last week detailing the purchase of an additional 1.56 million shares of Sirius XM, Buffett’s company now owns more than 110 million shares. This amounts to almost a third of the company’s outstanding shares.
Perhaps Buffett’s favorite thing about Sirius XM is that it is a legal monopoly. Although it still competes with traditional radio operators for listeners, it is the only licensed satellite radio company. Maintaining a legal moat should give Sirius XM meaningful subscription pricing power and lead to predictable operating cash flow.
Berkshire’s top investing minds have probably also noticed that Sirius XM’s retail channels give the company an inherent advantage over other radio companies. While online and terrestrial radio operators rely heavily on advertising spend, which is highly cyclical, Sirius Subscribers are much less likely to cancel their subscription. To improve their services during periods of economic turbulence, companies must cut back on their marketing budget.
Sirius XM also has cost advantages over its peers. Specifically, transmission and equipment costs are relatively static regardless of the number of subscribers the company has. If Sirius XM can grow its subscriber base over time, it would likely lead to operating margin expansion.
Finally, there’s a real value proposition with Sirius XM stock. The stock trades at eight times full-year earnings per share, and the annual payout of about $1.06 per share equates to a dividend yield of almost 4%. Sirius XM stands out in all the right ways for the Oracle of Omaha in a historically expensive stock market.
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Sean Williams has positions in Sirius XM. The Motley Fool holds positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Billionaire Warren Buffett Sold 56% of Berkshire’s Stake in Apple, Plunges into Wall Street’s Most High-Prominent Reverse Stock Split of 2024, originally published by The Motley Fool
