In this Motley Fool series, we pit two stocks against each other on five criteria to determine the better buy.
Today's bordering-on-cartoonish match-up was requested by a commenter (a semi-tongue-in-cheek baldheadeddork if you're wondering) on my recent E*Trade (NYSE: ETFC ) vs. Sirius XM (Nasdaq: SIRI ) better buy article. That was a battle of two sexy stocks that had seen some hard times -- E*Trade due to subprime bets gone bad and Sirius XM due to questions surrounding its ability to monetize its large subscriber base. E*Trade's still-viable discount brokerage operations made it more attractive by the numbers, but readers preferred Sirius XM by a 2:1 margin in our poll.
To me, today's match-up is even more intriguing for its contrast. Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) is Warren Buffett's holding company and the "it" stock for value investors. They relish the contrast between Buffett's conservative tactics and stunning results. Meanwhile, Sirius XM is a company not known so far for either. No, its proponents look to its future growth prospects.
Comparing these two may be a bit apples and oranges, but perhaps we can learn something in the exercise. Using five short-of-scientific-but-carefully chosen criteria, let's try to determine which is the better buy.
Round 1: Balance sheet
Until the credit crisis, Berkshire Hathaway was one of the few companies with a AAA debt rating (it remains pretty darn close to those heights). Buffett spent the crisis riding in on a white horse. In the fall of 2008, Berkshire was slated to rescue Constellation Energy until a better deal came around (Berkshire pocketed a great consolation prize -- a break-up fee of close to $1 billion). Berkshire also poured billions into General Electric (NYSE: GE ) and Goldman Sachs (NYSE: GS ) at very favorable terms (10% preferred dividends plus equity upside). They all took less than ideal deal terms because of the opportunity to be associated with Buffett's reputation and Berkshire's rock-solid balance sheet.
Sirius XM had a different credit crisis experience. There were very real bankruptcy concerns that dropped its share price to a nickel. In its darkest hour, it was bailed out by Liberty Media (Nasdaq: LCAPA ) , which took a 40% stake in Sirius in return.
Advantage: Berkshire Hathaway.
Round 2: Operations
After Sirius and XM Radio merged to become Sirius XM, its CEO Mel Karmazin has been focused on cost-cutting and getting it closer to sustained long-term profitability -- in fact, Sirius reported two consecutive profitable quarters to start the year. But Berkshire is a collection of well-run units like GEICO Insurance to See's Candies to Fruit of the Loom and investments and high-quality investments like its major stake in Coca-Cola.
Advantage: Berkshire Hathaway
Round 3: Safer bet
In other words, which company will put you in a better position to "never lose money" (as super-investor Warren Buffett says)? When you're quoting the CEO of one of the companies, it's a no-brainer.
Advantage: Berkshire Hathaway
Round 4: Sexier bet
Even though I co-authored an article called "Warren Buffett on Sex," I've got to go with Sirius XM here. As I've said before: Howard Stern? Battling Internet competition on mobile devices? Music for the masses? Shares trading at penny stock prices (though with a legitimate market cap)? Sirius XM is sexy.
Advantage: Sirius XM.
Round 5: CAPS rating
Our CAPS community much prefers Berkshire Hathaway, giving the B shares five stars (out of five) and the A shares four stars versus just two for Sirius.
Advantage: Berkshire Hathaway.
The blow-by-blow recap
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Factor
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Berkshire Hathaway
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Sirius XM
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Balance Sheet
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X
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Operations
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X
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Safer Bet
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X
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Sexier Bet
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X
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CAPS Rating
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X
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There you have it. Berkshire Hathaway takes down Sirius XM 4 to 1, making it our better buy by the numbers. But what do you think? Vote in the poll below. Then share your thoughts in the comments section below the poll.
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