Warren Buffett and his company, Berkshire Hathaway, have one of the best, if not the best, track records in the stock market over the past six decades. Between 1965 and 2024, Berkshire's stock generated a compound annual gain just shy of 20% and an overall gain of 5,502,284%. That compares favorably to the broader benchmark S&P 500 index, which has generated compound annual gains of 10.4% and a total return of 39,054% in the same time frame.
For this reason, when Buffett and Berkshire buy and sell stocks, the market listens, due to Buffett and his team's ability to find unloved stocks that can be big winners long-term. Does Buffett know something that Wall Street doesn't? Berkshire has been buying a Nasdaq stock-split stock with a hearty 5% dividend yield that certain Wall Street analysts recommend selling.
A deep value play or a value trap?
Buffett and Berkshire first began buying the large digital audio company Sirius XM Holdings (SIRI 0.16%) in 2016, although at the time, the company was still part of Liberty Media and investors could buy different classes of shares that tracked Sirius. However, due to the confusing corporate structure, Liberty Media split off Sirius in 2024, also conducting a reverse 1-for-10 stock split at the time. Following completion of the transaction, former Liberty Media shareholders owned over 80% of the new Sirius company.
Image source: The Motley Fool.
Berkshire has continued buying the stock following the transaction. In August, Berkshire added $106 million of stock, bringing its stake in Sirius to 37% of outstanding shares. Sirius, the owner of Sirius satellite radio and the Pandora music streaming service, has seen its stock walloped, down about 63% over the past five years. The big question is whether the stock represents a huge opportunity or is simply a value trap.
While Buffett and his team have been tight-lipped on the name, one reason they may like the stock is because it is technically a legal monopoly, holding the only license from the U.S. Federal Communications Commission to operate a satellite digital audio radio service. However, the rise of streaming services like Spotify has seemingly made these licenses less valuable than they once were.
Sirius has struggled to gain subscribers and has actually continued to see subscriptions fall over the past year. Both Sirius and Pandora subscribers were down on a year-over-year basis at the end of the second quarter of this year.
This occurred despite management introducing a large turnaround plan in September 2024. This involves building out a new stream of revenue through advertising, deepening the company's focus on podcast brands, and introducing new technology and subscription pricing models to significantly grow subscribers and free cash flow. On a long-term basis, management hopes to add 10 million subscribers and get to 50 million, while also growing free cash flow by 50% to $1.8 billion.
Several Wall Street analysts, who largely focus on a shorter-term time horizon one or two years out, are still skeptical on whether the company can turn things around. Of the 10 analysts who have issued research reports over the past three months, three still have a sell rating on the stock, according to TipRanks.
A nice dividend to compensate investors
Sirius' transformation will certainly not happen overnight and remains a show-me story, in my view, which adds a certain amount of risk. But investors can buy the stock for less than 8 times forward earnings, and with a hearty 5% dividend yield, so they are being compensated while they wait. Long-term investors with at least a five- or 10-year horizon can certainly consider the stock, although there are likely better opportunities available from an appreciation perspective, even in today's elevated market.
Sirius is also a good option for income investors because the company's trailing-12-month free-cash-flow yield is close to 13%, so the dividend should be sustainable. It really all boils down to your investing strategy.
