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So with the contract renewal, the domain name cycle potentially turning, and price increases in the out years, VeriSign looks like a good bet to grow higher than GDP over a multi-year period.

Sirius XM, on the other hand, has seen subscriber and revenue declines since the fourth quarter of 2022, when interest rate increases bit into consumer and auto demand. Of note, Sirius onboards a lot of customers through trials paid for by automakers, as a perk to prospective car buyers. When those trials run out, the buyer then has to decide whether to subscribe.

So, as new car sales slowed, so did Sirius XM's main marketing channel. Combine that with modern cars being able to connect with smartphones and play internet streaming stations, and that's another headwind.

Last quarter, Sirius XM's subscriber count declined by 1.7%, and its Pandora segment saw a 4.8% decline, leading to 4.3% revenue decline. However, Sirius XM's churn rate actually improved over the past year, from 1.7% to 1.6%. So, the decline can likely be attributed to dampened new customer onboarding.

Turnaround plans

Both companies have recently undertaken some new plans to reinvigorate growth, although Sirius XM's is more involved, obviously.

Recently, Sirius XM streamlined its ambitions to focus harder on its core in-vehicle audience, rather than grow its app outside the vehicle, as those non-auto subscribers proved less reliable.

The company is also refocusing on its premium customers, adding more content and value to the core subscription, while also implementing a price increase in March. Encouragingly, management said it had actually seen reduced churn even as prices rose, due to the increased value provided.

Sirius XM is also looking to attract lower-income customers through a new low-priced but ad-supported tier, with stripped-down channel options. That's just being rolled out, but it could also be a catalyst for growth, in the same way a low-priced, ad-supported tier has been a boon for Netflix.

Complementing this are Sirius XM's new deals with automakers for 2026 models, as well as better targeting capabilities for used vehicle buyers. In prior years, Sirius XM didn't have as much access to used vehicle sales -- and, therefore, to the ability to reach those new owners. So, that newer capability should enhance marketing coverage in 2026 and protect the company somewhat in case of a downturn in new auto sales.

Despite the declines last quarter, Sirius XM reiterated its 2025 targets for revenue, adjusted EBITDA, and free cash flow. Management saw subscriber losses moderating compared with the year-ago quarter, which indicated its turnaround efforts may be taking hold.

For VeriSign's turnaround strategy to boost domain names, it has recently been working with retail registrars to enhance customer acquisition. Over the past few years, registrars had pulled back on advertising, instead streamlining costs and increasing prices. But VeriSign is now working with its downstream partners on more marketing programs in order to spur domain name growth. The plan appears to be working, as VeriSign increased its 2025 guidance as a result.

A huge gap in valuation

VeriSign's new contract, the recent guidance raise, and the initiation of its first-ever dividend have catapulted the stock this year. It's up 33.3% for 2025. Meanwhile, Sirius XM, after enduring a difficult 2024, is down another 2.2% for 2025.

That has obviously led to a wide discrepancy in valuation. VeriSign is coming in at 31 times this year's earnings estimates, with a forward dividend yield of 1.1%, whereas Sirius XM trades at just 7.6 times this year's earnings estimates, with a dividend yield of 5%.

While Sirius XM seems like the bigger bargain, investors should also be aware that it has a higher debt load of about $10.5 billion, or 3.8 times adjusted EBITDA. With that high a debt load and its business still showing revenue declines, that's a risky combination.

The verdict

The decision between these two Buffett stocks depends on one's risk appetite, and one's belief as to whether or not Sirius XM's turnaround plan will work.

I'm more interested in Sirius XM's potential upside due to its bargain basement valuation, and the appearance that things may be getting "less bad" as interest rates come down. Actually, even if Sirius XM just manages to maintain its current profits, the stock could do well, given its 14% earnings yield. VeriSign is performing quite well, but its valuation appears to reflect that strength today. So, there's much more upside potential in the beaten-down Sirius XM.

However, Sirius XM also has much higher risk, as its turnaround efforts may not work. So even though it would be my personal choice today, I'd also be careful with the allocation's weighting in a diversified portfolio, in case the worst-case scenario emerges.

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Billy Duberstein and/or his clients have positions in Berkshire Hathaway and Netflix. The Motley Fool has positions in and recommends Berkshire Hathaway, Netflix, and VeriSign. The Motley Fool has a disclosure policy.

Best Buffett Stock to Buy Right Now: Sirius XM vs. VeriSign was originally published by The Motley Fool