When billionaire Warren Buffett speaks, Wall Street tends to pay very close attention. In his nearly six decades as CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), he’s overseen close to a 5,600,000% cumulative return in his company’s Class A shares (BRK.A). Few money managers have been able to consistently outpace the benchmark S&P 500 (SNPINDEX: ^GSPC) quite like Buffett.

Though riding the Oracle of Omaha’s coattails has been a profitable venture for decades, we’ve witnessed a discernable shift in Buffett’s investing habits over the last two years. Although he’s been a decisive seller of equities of late, there is one stock Berkshire’s chief can’t stop adding to his company’s 43-stock, $318 billion portfolio.

Warren Buffett has quietly become a net seller of stocks

Let me preface this discussion by making one thing clear: Warren Buffett is a long-term optimist when it comes to the U.S. economy and stock market. He’s repeatedly cautioned investors not to bet against America, and wisely realizes that periods of economic growth handily outlast short-lived recessions.

Despite this rosy long-term outlook, the Oracle of Omaha is also an ardent value investor who’s, historically, been unwilling to chase stocks higher when valuations aren’t attractive.

Between Oct. 1, 2022 and June 30, 2024, a span of seven quarters, Buffett and his team oversaw close to $132 billion in net stock sales. A majority of this selling activity can be traced to dumping north of 500 million shares of Apple over a three-quarter stretch. However, Form 4 filings with the Securities and Exchange Commission also show that more than $10 billion worth of Bank of America stock was sent to the chopping block since mid-July.

This persistent selling activity from Berkshire Hathaway’s brightest investment minds is almost certainly a response to the stock market being historically pricey.

On Monday, the S&P 500 and ageless Dow Jones Industrial Average closed at respective all-time highs. What’s more telling is that the S&P 500’s Shiller price-to-earnings (P/E) ratio, which is also known as the cyclically adjusted price-to-earnings ratio (CAPE ratio), hit its highest level of the year.

The Shiller P/E is a valuation tool that takes average inflation-adjusted earnings from the previous 10 years into account. This makes it an excellent apples-to-apples measure of value.

As of the closing bell on Oct. 14, the S&P 500’s Shiller P/E ratio stood at 37.70, which is more than double its average reading of 17.16, when back-tested to January 1871. This also represents the third-highest reading during a continuous bull market.

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Following the five previous instances, spanning 153 years, where the Shiller P/E surpassed 30, the broad-based S&P 500 and/or Dow Jones Industrial Average eventually shed 20% to 89% of their value. Wall Street simply can’t sustain premium valuations for an extended period of time — and the Oracle of Omaha knows it.

The Oracle of Omaha is piling into a historically cheap legal monopoly

But despite being a big-time seller of stocks for two years, the Oracle of Omaha has managed to unearth at least one value stock.

Following 15 separate Form 4 filings detailing selling activity in Bank of America since mid-July, investors were privy to a Form 4 filing after the closing bell on Oct. 11 that detailed buying activity in satellite-radio operator Sirius XM Holdings (NASDAQ: SIRI). Berkshire’s brightest investment minds spent $86.7 million to purchase an additional 3,564,059 shares from Oct. 9 through Oct. 11, which increased its stake in the company to 32.1%.

This year has been undeniably challenging for Sirius XM, which is contending with a two-quarter streak of declining satellite-radio subscribers. It’s reliant on strong auto sales, and the three-month promotional offer for its satellite-radio services that accompany those sales, to turn promotional listeners into self-pay subscribers. If auto sales fail to impress, Sirius XM may struggle to convert promotional listeners into paying users.

But what Sirius XM does have is a number of clearly visible competitive advantages and a historically cheap valuation that the Oracle of Omaha can’t resist.

The defining trait for Sirius XM is that it’s one of America’s few publicly traded legal monopolies. While being the only licensed satellite-radio operator doesn’t mean the company is devoid of competition, it does lead to significant pricing power. In other words, Sirius XM can increase its subscription prices to ensure that it’s outpacing inflationary pressures.

Beyond just being a legal monopoly, Sirius XM differs from traditional radio operators in a couple of important ways.

For starters, online and terrestrial radio companies bring in almost all of their revenue from advertising. Meanwhile, Sirius XM generated 77% of its net sales from subscriptions and roughly 19% from ads through the first-half of 2024. A primarily subscription-driven model leads to more consistent operating cash flow, and should provide a nice cushion for Sirius XM during short-lived recessions. The same can’t be said for traditional radio companies.

Sirius XM also enjoys some degree of cost predictability, which is not something you’d see from terrestrial radio operators. While royalty expenses and talent acquisition costs are going to vacillate from one quarter to the next, transmission and equipment costs are mostly static, regardless of how many subscribers the company adds. Ideally, this should lead to margin expansion over the long run.

I’d be remiss if I didn’t also mention that Sirius XM has a generous capital-return program. Aside from an existing $1.17 billion share repurchase authorization from its board, the company is doling out an S&P 500-crushing 3.9% yield.

The final piece of the puzzle that’s clearly compelled Buffett to buy shares of this legal monopoly hand over fist is its valuation. Buffett’s purchases last week came with Sirius XM stock at just 7 times forward-year earnings, which is the cheapest it’s been since becoming a public company 30 years ago.

Warren Buffett is a big fan of cheap, time-tested companies with sustainable moats — and that’s precisely what he’s getting with Sirius XM.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has positions in Bank of America and Sirius XM. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.

Warren Buffett Is Buying Shares of This Legal Monopoly Hand Over Fist was originally published by The Motley Fool