The Surprising Investment Trend That’s Got Everyone Talking
In the world of finance, few trends have garnered as much attention as the rise of artificial intelligence (AI) over the past two years. However, 2024 has seen a new phenomenon emerge: stock-split fever. This strategy, employed by publicly traded companies, allows them to adjust their share price and outstanding share count by the same factor, without impacting their market cap or operating performance.
Unpacking the Two Types of Stock Splits
Stock splits come in two varieties: reverse splits and forward splits. Reverse splits aim to increase a company’s share price, often to meet minimum listing standards. Investors tend to shy away from these, as they’re usually associated with struggling businesses. Forward splits, on the other hand, lower a company’s high-flying share price to make it more accessible to everyday investors. This type of split is often executed by companies that are outperforming their competition.
Billionaire Money Managers Take Notice
Since Walmart sparked the stock-split frenzy in late February, over a dozen brand-name businesses have followed suit. Notably, billionaire money managers Warren Buffett, Israel Englander, and Steven Cohen have all taken a keen interest in one particular company: Sirius XM Holdings (NASDAQ: SIRI).
The Unique Case of Sirius XM
In December 2023, Sirius XM announced plans to merge its common stock with Liberty Media’s Sirius XM tracking stock, Liberty Sirius XM Group. This merger created a single common share class, putting an end to any arbitrage opportunities between the two. The company’s board also announced plans for a 1-for-10 reverse stock split, aimed at increasing the share price from the low-to-mid single digits to attract asset managers who often avoid stocks trading below $5 per share.
Why Billionaire Money Managers Are Attracted to Sirius XM
Sirius XM’s unique competitive advantages, combined with its historically inexpensive valuation, have made it an attractive investment opportunity. As the only licensed satellite-radio operator, the company boasts outstanding pricing power on its subscriptions. Moreover, its predominantly subscription-driven model provides consistent operating cash flow in any economic climate. Investors also appreciate the predictability of Sirius XM’s cost structure, which sets it up for higher operating margins over time.
A Cherry on Top: Aggressive Capital Returns
Sirius XM’s board has demonstrated a commitment to maintaining an aggressive capital-return program, including occasional stock buybacks and a quarterly dividend yield of 4.1%. This has likely caught the attention of Warren Buffett, a fan of robust capital-return programs.
A Rare Investment Opportunity
With shares trading at approximately 8.5 times forward-year earnings, Sirius XM presents a remarkably cheap valuation. This has piqued the interest of billionaire money managers and savvy investors alike. Will you join the ranks of those taking advantage of this rare investment opportunity?
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