1 Warren Buffett Stock That Could Go Parabolic in 2025 and Beyond

Key Points

• Berkshire Hathaway has been increasing its stake in Sirius XM over the past year.

• The satellite radio provider is trading for 8 times forward sales, 7 times free cash flow, and 3 times adjusted EBITDA.

• Sirius XM's 4.8% dividend is sustainable for this cash cow business, and catalysts could see it return to growth soon.

• 10 stocks we like better than Sirius XM ›

You may be surprised to learn that the largest investor in Sirius XM Holdings (NASDAQ: SIRI) is none other than Berkshire Hathaway (NYSE: BRK.B). Warren Buffett's widely followed conglomerate has a 37% stake in the country's lone satellite radio provider.

It didn't start that way. True to Buffett's style of trying to make a good deal even better, his initial exposure to Sirius XM came in the form of publicly traded tracking shares put out by retired media mogul John Malone that offered a slice of the media stock at a discount.

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When the tracking shares were converted into Sirius XM last year, Buffett didn't just cash in on the premium and bolt. He went all in on the common. It gets better. Over the past year -- a time when Berkshire Hathaway has lightened its load across several of its roughly three dozen publicly held investments -- it has increased its stake in Sirius XM. It hasn't paid off for Berkshire Hathaway just yet, but things could be about to get a lot better.

Changing the tempo

Loading up on Sirius XM may not seem like the smartest move that Buffett's company has ever made. The stock has been cut in half since the start of last year, and his subsequent purchases since last fall's tracking share conversion have come at lower and lower price points. However, it doesn't mean that Berkshire Hathaway will lose here.

For starters, despite owning 37% of Sirius XM, the stake is actually just 1% of Berkshire Hathaway's public portfolio. It's not going to break Buffett if Sirius XM flops, but let's dive into why it could be one of the most promising stocks on the Berkshire scorecard.

Sirius XM has struggled to expand its reach in recent years. Organic revenue growth has routinely been in the single digits, and it's declining slightly for the third consecutive year. There are some good reasons for the stagnancy. New car sales have been sluggish in a climate of stiff auto loan rates. Younger drivers are leaning on smartphone audio apps played through their dashboards.

There are signs of the market flipping the script on this bearish narrative. For starters, the average age of a car on the road in the U.S. is a record 13 years. An upgrade cycle is coming, and you're already starting to see the financing rates start to come down. It may take a while to convince some of the younger drivers to take advantage of Sirius XM, but the entertainment stock is signing content deals with celebrity podcasters and show hosts, packing broad appeal for younger audiences.

Several other trends are shifting Sirius XM's way. Gas is cheap. Companies are calling people back into work. A springtime GSTV survey showed that 83% of respondents planned to take a road trip this summer, with a record 60% of them planning on driving more than 300 miles for their getaways. The more time that people spend in their cars, the stronger the value proposition for a Sirius XM subscription with coast-to-coast coverage.

Image source: Getty Images.

Cheap is where the art is

Buying a depressed stock -- just as its fundamentals could be turning the corner -- is a solid bullish thesis. The cherry on top is how cheap Sirius XM is right now.

You can follow Buffett into Sirius XM for just 8 times forward earnings. The stock is yielding 4.8% as you wait out the rebound. In the meantime, Sirius XM is making its own luck. It has been aggressively buying back its stock over the past dozen years, expanding profitability on a per-share basis by reducing its share count by nearly half.

Its latest quarter calls for $1.15 billion in free cash flow this year. That's a multiple of less than 7 based on market cap and still a reasonable enterprise value multiple below 16. Sirius XM believes it can push its annual free cash flow to $1.5 billion come 2027.

Sirius XM is a high-yielding value stock at a time when fixed income rates are falling. If today's headwinds become tomorrow's tailwinds, it could return as a growth stock, too. The volume knob goes both ways. Berkshire Hathaway's decision to add to its Sirius XM position over the past year should start to pay off soon.

Should you invest $1,000 in Sirius XM right now?

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Rick Munarriz has positions in Sirius XM. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.