Warren Buffett, the billionaire investor, is buying shares of a high-yield stock that some Wall Street analysts say to sell. Buffett’s company, Berkshire Hathaway, has been adding to its stake in Sirius XM, a digital audio company. Sirius XM is the only company with a satellite-radio license from the FCC.
This makes it a virtual monopoly. But the stock trades at a low valuation of about 8.5 times forward earnings. Over the past year, Berkshire has increased its stake in Sirius XM by a lot.
It added another 2.3 million shares worth about $54 million. This brings Berkshire’s ownership to around 35% of Sirius XM’s outstanding shares. It is now the 15th-largest position in Berkshire’s over $300 billion stock portfolio.
Sirius XM has had some challenges. It faces competition from big music and podcast companies that are getting more paying subscribers. To fight back, Sirius XM has gotten exclusive rights to advertise and distribute major podcasting brands.
This has helped a bit.
Buffett confident in Sirius XM investment
In its recent fourth-quarter earnings, the company reported an increase in Sirius XM subscribers for the first time in 1.5 years.
The stock has gone up nearly 16% this year. But many analysts are still skeptical. Jessica Reif Ehrlich of Bank of America kept her “underperform” rating on Sirius XM.
She lowered her price target by $2 to $21. In the past three months, four out of 12 analysts covering the stock said to sell it. The average price target suggests the stock could fall by 7% from current levels.
It’s not clear if Buffett himself or one of his investing lieutenants is leading this investment. But Sirius XM has ambitious long-term goals. It wants to add about 10 million subscribers and increase free cash flow by $600 million to $1.8 billion.
It plans to do this through things like price changes, new technology, and expanding podcasting partnerships. The Berkshire team may see limited downside risk from Sirius XM’s current position. The company’s 4.2% dividend yield provides steady income as Berkshire waits for management to carry out its turnaround plan.
Unlike many analysts’ short-term worries, Buffett’s long investment horizon might suggest he believes in Sirius XM’s ability to keep growing and making profits.
