Warren Buffett, along with his firm Berkshire Hathaway, has established a remarkable reputation by delivering impressive returns across the decades. From 1965 to 2023, the stock of Berkshire has skyrocketed by 4,384,748%, representing a compound annual growth rate of 19.8%. In contrast, the S&P 500 has reported a total gain of 31,223%, or a compound annual gain of 10.2% when accounting for dividends.
This remarkable performance is why numerous investors keenly observe Buffett and the actions of Berkshire. As the year concludes, here are two stocks favored by Warren Buffett worth considering in December. Throughout the year, Berkshire has consistently invested in Sirius XM Holdings and now holds the position of the largest shareholder in the company.
This year has brought significant transformation for Sirius. Recently, the company separated from Liberty Media and executed a reverse 1-for-10 stock split. The stock has experienced a more than 50% drop this year, grappling with substantial debt and a loss of paying subscribers.
Notwithstanding these difficulties, Sirius remains determined to expand its subscription service. The company has invested heavily to secure exclusive distribution and advertising rights for popular podcasts. In the third quarter, Sirius managed to gain approximately 14,000 new subscribers, raising the total to 37.4 million across both Sirius XM and its affiliated platform, Pandora.
Additonally, it reported a 6% growth in podcast advertising revenue. The company’s strategic long-term objective is to enhance its subscriber base by 25% from 2023, targeting a milestone of 50 million subscribers, all while boosting free cash flow (FCF) by 50% to reach $1.8 billion.
Consider Investing in Sirius and Citigroup
An increase in FCF would empower the company to engage in various initiatives like reducing debt, repurchasing shares, and elevating the dividend. Currently, the stock is valued at under 8 times its earnings and boasts a dividend yield nearing 4%. Buffett has historically shown affinity towards bank stocks.
Diving deeper, Berkshire has divested a considerable number of its bank stocks during the pandemic, selling off parts of its substantial investment in Bank of America throughout the year. Nevertheless, it has preserved nearly a 3% stake in Citigroup, which constitutes 1.3% of Berkshire’s expansive equities portfolio exceeding $300 billion. Citigroup has faced challenges since the Great Recession and is currently contending with a discontented shareholder base, a convoluted structure, and compliance orders related to its internal oversight.
Since taking the reins in 2021, CEO Jane Fraser has made notable strides, including offloading a majority of Citigroup’s global consumer operations. The bank is still in the process of divesting its lucrative Banamex segment in Mexico. Citigroup possesses substantial excess capital and can optimize its capital position over the long term as bank regulatory rules are finalized and the overall regulatory environment becomes more favorable.
Furthermore, Citigroup is already executing share repurchases, a strategy that is highly beneficial while the stock’s value remains beneath its tangible book value (TBV). Currently trading near $71, with tangible book value approaching $90, a valuation at 1.25 TBV could imply a stock price of $113. Management has the potential to enhance TBV through additional repurchases as long as shares are priced under TBV.
Additionally, Citigroup provides over a 3% dividend yield. These two stock selections exemplify why emulating Buffett’s investment choices often proves to be a wise course of action. As always, perform your own due diligence and evaluate your financial circumstances prior to making any investment commitments.
