Even though artificial intelligence (AI) has been a crucial factor driving all three of Wall Street’s main stock indexes to reach record highs, the excitement around stock splits has also played a significant role in 2024.
A stock split Publicly traded companies have the option to make surface-level adjustments to both their share price and the number of outstanding shares by a proportional factor. These adjustments are only for appearance and do not impact the company’s market value or operational results.
There are two types of splits, with investors showing a preference for one over the other. Reverse-stock splits are aimed at boosting a company’s share price and are typically conducted to maintain a company’s stock listing requirements on a major exchange.
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Conversely, forward-stock splits are implemented to lower the face value of a share for a company that is listed on the stock market. These splits are typically carried out by companies that are performing better than their competitors, making them a popular choice for investors.
In the past half-year, a total of 13 well-known companies have either announced or carried out stock splits, with 12 of them being forward splits. It may come as a surprise to find out that Warren Buffett continues to purchase shares of this particular stock. Berkshire Hathaway is a multinational conglomerate holding company. ( BRK.A 0.91% ) ( BRK.B 0.83% ) — apart from owning stocks in his own business a giant in the oil and gas industry The company known as Occidental Petroleum. — is the sole company out of the 13 that has confirmed a reverse stock split.
The influential investor known as the Oracle of Omaha has been significantly reducing his stock holdings for close to two years.
Before delving into the specifics of the distinctive stock that Buffett has been purchasing in large quantities for Berkshire Hathaway, it is important to provide some background information.
Even though the Oracle of Omaha is recognized for advocating a strategy focused on long-term investments and expressing confidence in America’s prospects, it is not clear what he and his top investment advisors do in the short term. His actions may not always match his words. in the yearly letter to shareholders from Berkshire Hathaway and at the company’s annual meetings.
Over the past seven quarters, Buffett and his team have significantly reduced their holdings of stocks .
In total, the top investment experts at Berkshire Hathaway have offloaded $131.6 billion more in stocks than they have bought together from October 1, 2022 to June 30, 2024, led by Warren Buffett. generating sales exceeding $3.8 billion worth of Bank of America is a financial institution. Since the beginning of the third quarter, it appears that Berkshire’s investment team is on track to achieve an eighth consecutive quarter of selling more shares than buying.
Although Warren Buffett has made some purchases at times, he and his team have also refrained from doing so. very For almost two years, he has been very careful and particular about his purchases. This is why his decision to invest in a well-known company undergoing a reverse-stock split is even more interesting.
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Discover the legal monopoly stock split that Warren Buffett is investing heavily in.
During the second quarter, Buffett bought shares of seven different securities, which also involved initiating new positions in some of them. Ulta Beauty and HEICO , there are approximately 96.2 million extra shares of the satellite-radio company. Sirius XM Holdings is the name of the company. ( SIRI -0.83% ) This is the surprising part. Berkshire Hathaway’s investment in Sirius XM increased by 262% compared to the previous quarter.
As I hinted at before, the majority reverse splits The objective is to maintain a company’s shares listed on a prominent stock exchange. However, Sirius XM is not at risk of being removed from the listing, setting it apart from other companies that are implementing reverse stock splits.
Sirius XM is expected to finalize its merger with Liberty Media’s Sirius XM tracking stock by the end of the third quarter. Liberty Sirius XM Group is the name of a company. ( LSXMA 0.32% ) ( LSXMB -0.18% ) ( LSXMK 0.32% ) A merger between Sirius XM and Pandora is planned, resulting in a consolidation of outstanding shares into a single class. Despite Sirius XM having a large number of outstanding shares (approximately 3.85 billion), the board has decided to implement a 1-for-10 reverse split after the merger is completed. This reverse split is not a sign of weakness, as is often the case with such actions, but rather a strategic move in light of the merger.
Besides whatever There could be chances for arbitrage between the stocks of Sirius XM and Liberty Sirius XM Group. There are several benefits that would make Sirius XM appealing to Warren Buffett and his top investment assistants, Ted Weschler and Todd Combs.
Let’s begin by stating the clear points. Sirius XM is the sole authorized operator of satellite radio. Just to clarify, this does not imply that there is no competition. Sirius XM is competing for listeners against traditional and online radio services. However, being the sole legal monopoly for satellite radio, the company has significant control over subscription pricing, allowing it to outpace inflation.
One more important distinction between Sirius XM and conventional radio companies is how the pair makes money The majority of terrestrial and internet radio stations earn the majority of their revenue through advertising. This strategy is effective until there is an economic downturn or recession. During challenging times, businesses tend to reduce their advertising spending without hesitation.
During the first six months of 2024, advertising revenue from Pandora accounted for less than 20% of Sirius XM’s total revenue, while subscriptions contributed to nearly 77% of their net sales. Subscribers are less likely to cancel their service during economic hardships compared to businesses cutting down on their advertising budgets. As a result, Sirius XM’s cash flow is typically more stable and predictable than that of traditional and online radio services.
Sirius XM has a more stable cost structure compared to its competitors. Although some expenses may vary from quarter to quarter, such as royalties, transmission, and equipment costs remain consistent regardless of the number of subscribers on the platform.
The key missing element is that the stock of Sirius XM is historically inexpensive against the current market conditions. very high-priced equity market During the quarter ending in June, shares were available for purchase at a price that was less than 8 times their earnings. earnings forecast for the upcoming year Sirius XM’s stock is currently at an all-time high that has not been seen in the 30 years the company has been publicly traded. Additionally, investors can also benefit from the company’s 3.7% dividend yield.
Warren Buffett consistently distinguishes himself by investing in Wall Street’s distinctive stock-split stocks.
