Although artificial intelligence (AI) was the indispensable innovation that helped all three major Wall Street stock indices reach record highs, the euphoria surrounding stock splits in 2024 is likely to be just as important.

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

Splits come in two varieties, with one being significantly more popular with investors than the other. On the one hand, there are reverse stock splits, which aim to increase a company’s share price. Reverse stock splits are often performed to ensure that a company’s shares continue to meet the 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 nominal stock price of a publicly traded company. Since forward splits are almost always done by companies that are outperforming their competitors in terms of innovation and performance, this is the type of stock split that most investors flock to.

In the last six months, 13 well-known companies have announced or completed stock splits, 12 of which were forward splits. However, you may be surprised to learn that Warren Buffett can’t stop buying stocks, Berkshire-Hathaway (BRK.A 0.91%) (BRK.B 0.83%) — apart from shares in his own company and the oil and gas giant Occidental Petroleum – is the only one of the 13 that has announced a reverse split.

The Oracle of Omaha was a on a grand scale Seller of shares for almost two years

Before we get into the details of the unique stock split that Buffett bought in abundance on behalf of Berkshire Hathaway, some background is necessary.

Although the Oracle of Omaha is known for his long-term approach to investing and has stated on numerous occasions that he would “not bet against America,” what he and his key investment advisers do over shorter time periods 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 last seven quarters, Buffett and his team have been net big sellers of stocks.

In total, Berkshire’s brightest investment minds sold $131.6 billion worth of stock when they bought together between October 1, 2022, and June 30, 2024. Buffett sold more than $3.8 billion worth of stock. Bank of America Berkshire’s investment team appears to be on track to report its eighth consecutive quarter of net selling activity since the start of the third quarter.

While Warren Buffett occasionally pressed the buy button, he and his team very For nearly two years, they have been very selective in their purchases, which makes it all the more interesting that he is buying into a popular company that is doing a reverse stock split.

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Learn about the legal monopoly Warren Buffett acquires through stock splits

Although Buffett bought shares of seven securities in the second quarter, including opening new positions in Ulta Beauty And HEICOIt is the approximately 96.2 million additional shares of the satellite radio operator SiriusXM Holdings (SIRI -0.83%) That’s a big deal. This increased Berkshire’s stake in Sirius XM by 262% compared to the previous quarter.

As I mentioned earlier, most reverse stock splits are designed to keep a company’s shares listed on a major exchange. However, Sirius XM is not at risk of delisting, making it unique among companies that conduct reverse stock splits.

By the end of the third quarter, Sirius XM should complete its merger with Liberty Media’s Sirius XM Tracking Stock. Liberty Sirius XM Group (LSXMA 0.32%) (LSXMB -0.18%) (LSXMK 0.32%)creating a single class of outstanding shares. However, because Sirius XM already has so many outstanding shares (approximately 3.85 billion), the board announced a 1-for-10 reverse split that will be implemented after the merger is complete. In other words, this is not a stock split done on weakness, which is typically seen with reverse splits.

Aside from the arbitrage opportunities that could exist between Sirius XM shares and those of Liberty Sirius XM Group, there are a number of competitive advantages that would make Sirius XM attractive to Warren Buffett and his key investment advisors Ted Weschler and Todd Combs.

First, Sirius XM is the only licensed satellite radio operator. But that doesn’t mean it doesn’t have competition. Sirius XM competes with terrestrial and online radio providers for listeners. However, as the only legal monopolist of satellite radio services, the company has extraordinary pricing power over subscriptions, which it uses to stay ahead of the inflation curve.

Another key difference between Sirius XM and traditional radio providers is how both generate their revenue. Most terrestrial and online radio providers generate almost all of their revenue through advertising. This approach works great until there is an economic downturn or recession. Companies aren’t afraid to cut their marketing budgets at the first sign of trouble.

In the first half of 2024, less than 20% of Sirius XM’s revenue was from advertising (via Pandora). By comparison, nearly 77% of net revenue came from subscriptions. Subscribers are much less likely to cancel their service during economic downturns than companies are to significantly reduce their advertising budgets. In short, Sirius XM’s cash flow tends to be far more predictable than that of terrestrial and online radio providers.

Sirius XM’s cost structure is also more predictable than its competitors. While there are certain expenses that fluctuate quarterly, such as licensing fees, transmission and equipment costs tend to be relatively fixed, regardless of how many subscribers Sirius XM has on its platform.

The final piece of the puzzle is that Sirius XM stock is historically cheap against the backdrop of a very expensive stock market. Shares could easily have been bought for less than 8 times expected annual earnings in the June quarter – a price at which Sirius XM has never traded in its 30 years as a public company. The icing on the cake is the company’s dividend yield of 3.7%.

Warren Buffett always finds a way to stand out from the crowd. And one way to do that is by buying Wall Street’s unique stock split stocks.