Approximately 40,000 investors flock to Omaha, Nebraska each year Berkshire Hathaway‘S (NYSE: BRK.A)(NYSE: BRK.B) shareholders meeting. They make this trip to hear CEO Warren Buffett speak about stocks, the American economy and his investment philosophy.
While investors appreciate Buffett’s open-book approach, it’s his massive outperformance versus the benchmark S&P500 that’s the hook. Over a period of nearly six decades, he has overseen cumulative returns of more than 5,500,000% on his company’s Class A shares (BRK.A). This means bargains are often hidden in plain sight in Berkshire’s portfolio.
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Arguably the best stock to buy in November within the 43-stock, $312 billion portfolio that Warren Buffett oversees at Berkshire Hathaway is Wall Street’s most prominent reverse split in 2024.
Warren Buffett, CEO of Berkshire Hathaway. Image source: The Motley Fool.
A stock split is a tool available to publicly traded companies that allows them to cosmetically change their stock price and the number of shares outstanding. These changes are superficial in the sense that they do not affect a company’s market capitalization or underlying operating performance.
Splits come in two varieties, with investors choosing one over the other. Forward splits, which aim to lower a company’s share price to make it nominally more affordable to ordinary investors, are the more popular of the two. This type of split is carried out by high-flying companies that innovate and outcompete better. Of the more than a dozen high-profile companies that completed a stock split in 2024, all but one were of the forward variety.
At the other end of the spectrum are reverse stock splits, which aim to increase a company’s stock price while reducing the number of shares outstanding by the same amount. This type of split is often carried out from a position of operational weakness by companies whose shares are at risk of delisting from a major stock exchange.
Still, 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 a satellite radio operator Sirius XM Holdings(NASDAQ: SIRI).
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 share classes. Liberty Sirius XM Group’s stock rarely followed the performance of Sirius
The merger of these share classes was completed after the market close 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 completion of its merger with Liberty Sirius XM Group.
While I noted that reverse splits are usually intended to avoid delisting, what makes the Sirius XM split so unique is that there was no danger of the shares being delisted. Nasdaq stock exchange. On the contrary, Sirius By splitting its shares 1 for 10, Sirius
Warren Buffett is usually a big fan of companies that have a competitive position that can’t be disrupted, and Sirius XM certainly delivers on that.
What is perhaps its most prominent competitive advantage is that it is the only licensed satellite radio provider. Although Sirius XM continues to face competition from traditional radio operators for listenership, Sirius Of Spotify technology recently increased its subscription price, it wouldn’t be a surprise if Sirius XM followed suit.
A more subtle competitive advantage for Sirius XM, but perhaps more important than being the only licensed satellite radio operator, is its revenue diversity. While terrestrial and online radio providers get most of their revenue from advertising, Sirius
While advertising-driven operating models perform well during long periods of economic expansion, traditional radio operators can also be exposed to significant downsides during slowdowns and recessions. Because Sirius XM subscribers are less likely to cancel their service during a recession than companies are to reduce their marketing budgets, Sirius
Sirius XM also brings a degree of cost transparency. While royalty expenses and talent acquisition costs will fluctuate from quarter to quarter, 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 be a recipe for margin expansion.
In addition to well-defined competitive advantages, Warren Buffett also likes good value for money and a solid capital return program.
As of the closing bell on October 25, Sirius robust yield of 4.1%.
Whether you’re a value or income seeker, Sirius XM Holdings is up for grabs this November.
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Sean Williams has positions in Sirius XM. The Motley Fool holds positions in and recommends Berkshire Hathaway and Spotify Technology. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
The No-Brainer Warren Buffett Stock to Buy in November Is Wall Street’s Most Prominent Reverse Stock Split of 2024 Originally published by The Motley Fool
