If you're looking for one of Warren Buffett's biggest gainers of this year, you may want to start with one of his worst performers in 2024. Sirius XM Holdings (SIRI -6.71%) was a painful stock to own last year. Shares of the satellite radio provider plummeted 58% in 2023.
Sirius XM is one of the roughly three dozen publicly traded companies owned by Berkshire Hathaway (BRK.A -0.09%) (BRK.B -0.24%). It accounts for a little less than 1% of the value of that widely followed portfolio, but Buffett seems to disagree with the yearlong sell-off. Berkshire Hathaway added to its position in October. It purchased nearly 5 million more shares last month.
Is it time to follow Buffett's lead, warming up to a media bellwether that began last year as a large cap but got marked down to a mid-cap? Let's take a closer look at what went wrong for Sirius XM, then check out the things that can go right for one of Berkshire Hathaway's latest cravings.
Turning down the volume
It's easy to see why speculators have moved on from the investment that was a meme stock before meme stocks were a thing. It was a popular penny stock with seismic growth potential ages ago. A reverse stock split in September -- which facilitated the transaction to absorb complicated tracking shares that Buffett also used to own -- fished the share price out of the single-digit betting pool.
Growth investors have also set up camp elsewhere. Sirius XM is now entering what should be its third consecutive year of declining revenue. The shares were running on fumes for a long time before this unfortunate streak. You have to go all the way back to 2014 to find the last year that Sirius XM came through with organic double-digit revenue growth.
At least some of the downticks of 2024 are justified. The number of premium subscribers to the flagship satellite radio service peaked in 2019. The platform was starting to stage a recovery coming out of the pandemic, but that bullish trend ran out of gas in 2023. A modest 0.6% decline in revenue two years ago should widen to a roughly 3% slide by the time 2024 numbers become official.
The stock took one final hit last month when it issued disappointing guidance for 2025. Sirius XM is now bracing investors for a 2% top-line decline for all of this year. This was after the radio broadcaster revised its 2024 outlook lower on Halloween. Can 2025 can turn last year's black cat into catalysts?
Image source: Getty Images.
Playing a new tune
The exit of speculators and growth investors should open the door for value and income investors. This is a scalable model that is vulnerable to the impact of contracting revenue, but Sirius XM is still generating a lot of free cash flow and positive earnings even as it struggles.
Sirius XM still expects to deliver $1.15 billion in free cash flow in 2025, along with $2.6 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). This is a slight step back from last year on both fronts, but Sirius XM shares are now trading for just 7.6 times forward earnings.
The platform with 33.2 million subscribers is doing some encouraging things with its excess cash. It's been buying back stock, reducing its once-massive outstanding share count by 42% over the past dozen years. It's also shelling out a substantial dividend that has become even more generous after eight years of hikes and the free-falling stock price. The stock is now yielding 4.7%, more than the market's highest-yielding money market funds, which have retreated on their payouts in recent months.
Sirius XM's business hasn't faded as quickly as the stock over the past year. Berkshire Hathaway likely sees the value in today's lower price, but don't be surprised if Sirius XM is lacing its shoes to race again.
Satellite radio is consumed largely in vehicles, and there are strong catalysts for folks getting in their cars again. U.S. retail gas prices have fallen substantially since springtime of last year. Companies are calling employees back to in-office work. Lending rates haven't fallen as sharply as many had hoped, but when that does happen, it should trigger a surge in auto loan demand from folks looking to refresh their cars.
A cheap stock with a hefty quarterly dividend and bullish catalysts hiding in plain sight? Don't be surprised if one of Buffett's biggest losers in 2024 leads Berkshire Hathaway's stock portfolio higher in 2025.
