Meet the Stock-Split Stock Warren Buffett Can't Stop Buying. And It Still Offers 58% Upside, According to 1 Wall Street Analyst.

Those looking to become successful investors could do worse than following in the footsteps of legendary Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) CEO Warren Buffett, arguably one of the greatest investors of all time. Since taking the helm of the company in 1965, Buffett has an unparalleled track record, as his stock picks have generated compounded annual gains of roughly 20% and collectively soared 4,384,748%.

Stock splits have enjoyed a resurgence in recent years, and it's easy to see why. The practice is generally reserved for companies with consistently strong sales and profit growth, which fuels a surging stock price. In other cases, they can be used to further a corporate action.

Investors might be surprised to learn that despite selling large swaths of Berkshire's equity portfolio in recent quarters, the so-called "Oracle of Omaha" has been buying up shares of one stock-split stock that he seemingly can't get enough of -- Sirius XM Holdings (NASDAQ: SIRI).

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Hand over fist

In a regulatory filing that dropped earlier this month, it came to light that Berkshire Hathaway increased its holdings in the satellite radio operator by more than 3.5 million shares, spending more than $86.7 million in the process. That brings Buffett's total stake to 108.7 million shares, currently worth more than $2.9 billion (as of this writing). With about 339 million shares outstanding, that amounts to about 32% of the company's outstanding shares.

Sirius XM has struggled in recent years, so why is Buffett buying the stock like it's going out of style?

A lot to like

First, there's the company's industry dominance. When it comes to satellite radio, Sirius is without equal. It has 33 million paying subscribers on its rolls, but its audience climbs to 150 million listeners when you include Pandora, the company's ad-supported streaming music service.

In the second quarter, revenue declined 3% year over year to $2.18 billion, while earnings per share (EPS) of $0.08 was flat. While that might not seem like much to write home about, a look at several other metrics provides insight into why Buffett finds this business so appealing.

During the quarter, Sirius XM generated free cash flow of $343 million. The company's roughly 33 million subscribers generate a healthy amount of recurring revenue, as does the advertising on Pandora. The subsidiary reported 2.6 billion listener hours, which helps guarantee robust advertising rates. Buffett is a big fan of recurring cash flow, and Sirius has that in spades.

I'd be remiss if I didn't address the elephant in the room. Sirius XM has been shedding subscribers from its flagship service for several successive quarters. However, management explained that while paid subscribers declined nearly 1.5%, this was largely the result of unpaid trial subscriptions offered by a number of automakers. The company attracts many of its subscribers as a result of these free trials.

The macroeconomic headwinds of recent years resulted in fewer cars being sold, thus fewer new memberships. Furthermore, as consumers made difficult choices at the gas pump and in the grocery aisle, some let their subscriptions lapse when they came up for renewal. However, history shows that an improving economy bodes well for consumer spending, which includes Sirius XM.

Then, there's Pandora's advertising business. Many businesses cut back on ad spending to weather the economic downturn, but as inflation continues to subside, advertising is staging a long-awaited recovery, which is evident in the company's results. While ad revenue was flat year over year, it was up 10% sequentially. As the economy continues to bounce back, so too will Pandora's ad revenue.

Aside from a degree of predictability and strong recurring cash flow, there's another benefit Buffett might find appealing. The company pays a healthy dividend that yields roughly 3.9% and has increased 166% over the past 10 years. Furthermore, with a payout ratio of just 28%, there's plenty of potential for that dividend to grow in the years and decades to come.

There's also the matter of valuation. The aforementioned challenges have spooked fair-weather investors, driving down the stock price and its valuation. Sirius XM is currently selling for just 8 times earnings and 1 times sales -- which is the very definition of attractively priced. It's no secret that Buffett likes a bargain, and Sirius certainly qualifies.

Buffett isn't the only one who thinks Sirius XM stock is cheap. Benchmark analyst Matthew Harrigan is squarely in the Buffett camp. Just last week, Harrigan reaffirmed his buy rating on Sirius XM with a price target of $43.

That represents potential upside of 58% compared to Monday's closing price. The analyst had previously cited the market disconnect resulting from its recent merger with tracking stock Liberty Sirius XM. He also believes that management's laundry list of "strategic initiatives" will ultimately be successful.

To recap, Sirius XM generates strong, predictable free cash flow, has a generous and growing dividend, and is selling for a song. Given the improving macroeconomic outlook, the potential upside, and the Warren Buffett seal of approval, Sirius XM might be worth a look.

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Danny Vena has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.