Warren Buffett hasn’t seen much to like in the stock market lately.
The Oracle of Omaha has sold more shares than he bought in each of the past seven reported quarters Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B). That includes a massive sale worth about $75 billion Apple shares in the second quarter and raised more than $10 billion Bank of America shares in the past three months. That pattern makes it likely that the third quarter was the eighth consecutive quarter of net sales for Buffett and his team of portfolio managers.
But Buffett (or one of his fellow managers) buys at least one share for Berkshire Hathaway shareholders based on required filings with the SEC.
Buffett’s typical purchasing behavior has changed
In recent years, Buffett has made some predictable stock purchases, but even those may not be so reliable in today’s market.
Despite reducing or selling his exposure to shares in Berkshire’s portfolio, Buffett could be counted on to buy back shares of Berkshire Hathaway over the past six years. But share buybacks may be less attractive at Berkshire’s current share price, which is up 30% year to date.
Buffett didn’t buy back a single share in June, and the stock has traded consistently higher in the third quarter. That could lead to the first quarter in which Buffett did not buy back a single share, as the board of directors changed the buyback authorization in mid-2018. Investors will have to wait until Berkshire’s Q3 earnings report in early November to know for sure.
Buffett has also given the cold shoulder to another stock he has consistently bought in recent years. Every moment Western petroleum saw the stock price drop below $60 per share, investors could reasonably expect a filing showing that Berkshire Hathaway had purchased more shares of its common stock. Despite falling oil prices in the third quarter, which led to a two-year stock price low for Occidental, these SEC filings never materialized.
It could be that Buffett is happy with a 27.3% stake in the company at this point. He said he has no interest in taking a controlling stake in Occidental, and he praised CEO Vicki Hollub several times, indicating he believes his investment is in good hands.
Only one SEC filing since late June showed Berkshire adding to an existing position. In October, Berkshire Hathaway bought $87 million worth of stock Sirius XM (NASDAQ: SIRI) shares.
Berkshire now owns a large portion of this company
Berkshire Hathaway previously owned shares of Sirius XM, but began seriously acquiring a stake in the company late last year. The vast majority of the stake was acquired through a position in 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 more than 30% of the total number of shares outstanding.
Sirius XM is the only satellite radio operator in the United States. Unlike terrestrial radio, Sirius XM makes most of its revenue from subscriptions rather than advertising. The method of attracting new subscribers is mainly based on free trial periods when purchasing new cars. Over the years, it has managed to attract around 33 million paying subscribers, and at the end of the second quarter it had 7.4 million free trial listeners.
The free trial strategy and focus on exclusive content take care of much of Sirius XM’s marketing needs, allowing it to keep operating costs low. Additionally, Sirius XM benefits from lower music royalty rates than on-demand streaming services, paying only 15.5% of gross revenue for music licensing. On-demand streaming pays about twice as much.
As a result, Sirius XM produces steadily increasing operating profits as its subscriber base grows. Although its subscriber base has stagnated recently, the company remains quite profitable.
There is no indication that Sirius XM is experiencing a mass exodus of subscribers, but the stock appears to be trading as such. The shares are currently priced at just over eight times analyst estimates for 2025 earnings. The 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 easy-to-understand business model, it’s a prototypical Warren Buffett investment.
A warning from Buffett
At the time of writing, Sirius XM is the only stock we know for certain that Buffett and his team have 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 of just over $9 billion. That won’t exactly help 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 money into. The larger companies that could move the price are probably not attractive at this point (in Buffett’s eyes) from a valuation perspective, which explains why he has been a net seller of stocks.
But for ordinary investors, i.e. 99.99% of the world, there are a lot of opportunities. Sirius XM may be just one of many small- and mid-cap stocks that investors should add to their portfolios in today’s market.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Adam Levy has positions at Apple. The Motley Fool holds positions in and recommends Apple, Bank of America and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
This is the one stock we know for sure Warren Buffett and Berkshire Hathaway are buying, originally published by The Motley Fool
