There are times when the market offers unique opportunities to secure an even greater discount on a stock that is already trading at an appealing price. Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) seems to be taking advantage of one such opportunity currently.
In April, Berkshire Hathaway purchased a combined $167.5 million worth of Liberty SiriusXM (NASDAQ: LSXMA) (NASDAQ: LSXMK) tracking stock, increasing its total position to approximately $2.6 billion. This tracking stock closely mirrors Liberty Media’s stake in Sirius XM (NASDAQ: SIRI), of which the media company owns 83%. While Berkshire is also an investor in Sirius XM, its total investment stands at just $125 million as per its latest update.
Buffett’s preference for the Liberty tracking stock over Sirius XM shares is justified by the discount it offers.
Opportunity to Save on Sirius XM
In December, Sirius XM and Liberty agreed to merge the two stocks, with the completion expected in the third quarter. Liberty SiriusXM shareholders will receive 8.4 shares of Sirius XM stock per share of the tracking stock they currently own. At current market prices, 8.4 shares of Sirius XM are valued around $26.20, while the Liberty tracking stocks trade at approximately $25.13, offering investors an additional 4% discount on shares.
Previously, the discount was much larger, with investors being able to avail a significant 39% discount by purchasing the tracking stock instead of Sirius XM. The discount has since decreased due to a reduction in short interest in Sirius XM and improved price discovery.
Despite the reduced discount, there is still some risk compared to owning Sirius XM directly, as the merger is pending and potential legal challenges could arise. However, the likelihood of the merger proceeding as planned is increasing over time.
Investors currently have the opportunity to acquire Sirius XM shares at a discount, albeit a smaller one than before. Should they follow Buffett and Berkshire Hathaway into the stock?
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Is Sirius XM a Good Investment?
Sirius XM, the largest satellite radio company in the US with 33 million subscribers, generates most of its revenue from subscriptions rather than on-air ads like terrestrial radio stations.
While Sirius has faced challenges in growth recently, there are signs of a potential turnaround. The company’s subscriber funnel has expanded, and management anticipates subscriber growth to accelerate in the second half of the year. Sirius has also invested in streaming services, podcasts, and ad sales to drive revenue growth.
With a growing subscriber base, improved digital ad sales, and strategic investments, Sirius looks poised for growth. Trading at attractive valuation multiples, it presents a compelling investment opportunity, especially if investors can secure a discount through the Liberty Media tracking stock.
Should You Invest in Berkshire Hathaway?
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Disclosure: Adam Levy has no position in any of the mentioned stocks. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
This article was originally published by The Motley Fool.
