Meet Unique Stocks Divided into Stocks Warren Buffett has tripled his holdings

Although artificial intelligence (AI) was the must-have innovation that propelled all three of Wall Street’s major stock indexes to record highs, the euphoria of stock splits was arguably just as important in 2024.

A stock split allows publicly traded companies the ability to superficially adjust their stock price and number of shares outstanding by the same factor. These changes are cosmetic in the sense that they do not affect a company’s market capitalization or its operating performance.

Dividends come in two flavors, with investors gravitating toward one much more than the other. On the one hand, there are reverse stock splits, which are geared toward increasing a company’s stock price. Reverse splits are often conducted to ensure that a company’s stock meets minimum standards for listing on a major stock exchange.

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On the other hand, forward stock splits are used to lower the par price of the stock for a publicly traded company. Because forward splits are almost universally performed by companies that are out-innovating and outperforming the competition, this is the type of stock split that most investors get confused about.

In the past six months, 13 branded companies have announced or completed stock splits, 12 of which are forward splits. However, you might be surprised to learn that Warren Buffett’s stocks can’t be stopped from being bought Berkshire Hathaway (BRK.A 0.91%) (BRK.B 0.83%) — aside from his own company and oil and gas stocks Occidental Petroleum — is the only one of the 13 to announce a reverse split.

The Oracle of Omaha was a great stock seller for almost two years

Before delving into the details of the single stock split that Buffett bought out of hand for Berkshire Hathaway, some context is in order.

Although the Oracle of Omaha is known for promoting a long-term investment approach and has repeatedly proclaimed that he will not “bet against America,” what he and his top investment aides are doing over shorter periods would may not always align with what he preaches in Berkshire’s annual letter to shareholders and during his company’s annual meetings.

In each of the past seven quarters, Buffett and his team have been net sellers of equity securities.

In total, Berkshire’s brightest investment minds sold $131.6 billion more in stocks than they collectively bought between October 1, 2022, and June 30, 2024. Buffett selling over $3.8 billion . Bank of America as of the start of the third quarter, Berkshire’s investment team appears to be on track for its eighth consecutive quarter of net selling activity.

While Warren Buffett has hit the buy button at times, he and his team have been very selective about their purchases for nearly two years. That’s what makes his entry into a popular company that adopts a reverse stock split even more intriguing.

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Meet Warren Buffett’s legal split stock monopoly

Although Buffett purchased shares of seven stocks in the second quarter, including opening new positions in The ultimate beauty and HEICOit’s about 96.2 million additional shares of the satellite radio operator Sirius XM Holdings (SIR -0.83%) that’s the eye-popper. That boosted Berkshire’s stake in Sirius XM by 262% quarter-on-quarter.

As we alluded to earlier, most reverse splits are aimed at keeping a company’s stock listed on a major exchange. But Sirius XM is not in danger of being delisted, which makes it unique among companies doing reverse stock splits.

By the end of the third quarter, Sirius XM is expected to complete the merger with Liberty Media’s Sirius XM tracking stock, Sirius XM Liberty Group (LSXMA 0.32%) (LSXMB -0.18%) (LSXMK 0.32%)which will create a single class of shares outstanding. But since Sirius XM already has so many shares outstanding (about 3.85 billion), its board announced a 1-for-10 reverse split that will take place upon completion of the merger. In other words, this is not a stock split that is done out of weakness, which is usually seen with reverse splits.

Besides any arbitrage opportunities that might exist between Sirius XM and Liberty Sirius XM Group stock, there are quite a few competitive advantages that would make Sirius XM attractive to Warren Buffett and his top investment aides, Ted Weschler and Todd Combs.

To start with the obvious, Sirius XM is the only licensed satellite radio operator. To be clear, that doesn’t mean it’s without competition. Sirius XM is fighting for listeners right alongside terrestrial and online radio providers. But being the only legal monopoly for satellite radio services gives the company exceptional power to set subscription prices, which it uses to stay ahead of the inflationary curve.

Another key difference between Sirius XM and traditional radio operators is how the two generate revenue. Most terrestrial and online radio providers generate almost all of their sales from advertising. This approach works great until an economic contraction or recession occurs. Businesses aren’t shy about slashing their marketing budgets at the first sign of trouble.

By the first half of 2024, less than 20% of Sirius XM’s revenue was traced to advertising (via Pandora). Comparatively, nearly 77% of net sales came from subscriptions. There is considerably less chance that subscribers will cancel their service during an economic downturn than there is for businesses to significantly reduce their advertising budgets. In short, Sirius XM’s cash flow tends to be much more predictable than terrestrial and online radio providers.

Sirius XM’s cost structure is also more predictable than its peers. While there are certain expenses that will ebb and flow quarterly, such as royalties, broadcast and equipment costs tend to be relatively fixed regardless of how many subscribers Sirius XM has on its platform.

The last piece of the puzzle is that Sirius XM stock is historically cheap against a backdrop of a very expensive scholarship. Shares could easily have been raised in the quarter ended in June for less than 8 times annual earnings — a level Sirius XM hasn’t traded at in its 30 years as a public company. The cherry on top is the company’s 3.7% dividend yield.

Warren Buffett always finds a way to stand out; and buying Wall Street single-split stocks is one way to do this.