The Oracle of Omaha began buying OXY in March and accumulated about a 20% stake
Occidental Petroleum (NYSE:OXY) continues to find a constant bid in its stock price. That’s as Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) keeps accumulating a larger position.
The Oracle of Omaha has spoken many times in the last few years about the lack of opportunities in the market. With the bull market driving stocks higher and higher, Warren Buffett, Charlie Munger and the rest of the Berkshire Crew have had trouble finding good businesses to buy at good prices.
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That tune has changed remarkably in 2022, as the S&P 500 and Nasdaq tipped into bear market territory. Buffett’s accumulation of Occidental Petroleum has not gone unnoticed, perhaps garnering even more attention than Apple,
When a Form 4 filing with the SEC comes from Berkshire, investors can guess which stock it may be for.
Berkshire Hathaway quickly became OXY's largest institutional shareholder. According to its most recently filed Form 4 from July 18th, the firm owns more than 181 million shares, good for roughly a 20% stake. Only two other institutional shareholders with a stake over 10% in the first quarter; Vanguard and Dodge & Cox. We’ll find out the quarterly holdings next month.
Notably, if Berkshire does cross the 20% ownership threshold, it can begin reporting "a proportional share of Occidental's earnings within its own earnings reports, which would give Berkshire a significant boost."
If we look at the past 12 months, there are only three positive sectors in that span: Energy, utilities and consumer staples. By far, though, energy is up the most, higher by about 50% over the past year. Conversely, utilities and consumer staples are up just 7.8% and 2.8%, respectively.
Zooming in to the year-to-date performance, energy is the only sector with a positive return, up 31.7%. The rest of the sectors are lower so far this year — which is no surprise, with the S&P 500 and Nasdaq down 17.5% and 25.5% so far in 2022, respectively.
Buffett & Co. liked what they saw this year from the energy sector. Regarding Occidental Petroleum, the group began accumulating swaths in early March.
It began with about a 15 million share March 2nd buy, followed by consecutive buys or 12.35 million shares on March 3rd and 34 million on March 4th.
In those three days — a Wednesday through Friday — Buffett bought up more than 61 million shares of Occidental Petroleum. Ultimately, it came just a few days after the company had reported earnings, which easily topped earnings and revenue expectations.
In that report, the company talked about paying down debt and increasing its dividend. It also launched a $3 billion buyback. At that time, that was good for roughly 8% of its outstanding shares, and investors know how much Buffett liked his buybacks and dividends.
Does Occidental and Buffett Ring a Bell?
If these two entities — Buffett/Berkshire and Occidental — ring a bell, it’s because it’s not the first time they have gotten to know each other. On Form 4, in addition to Berkshire’s roughly 181 million shares, it also has 100,000 preferred shares.
That came after Berkshire helped facilitate Occidental’s 2019 takeover bid for Anadarko Petroleum. The firm outbid Chevron's $65 a share for the company. Occidental won financing from Berkshire and Anadarko with its $76 a share offer.
Berkshire's preferred shares were valued at $100,000 each ($10 billion in total), with Occidental agreeing to pay an 8% annual dividend. Berkshire also received a warrant to purchase up to 80 million shares at an exercise price of $62.50.
With Buffett and Berkshire blessing Occidental's Anadarko deal, they must like what they've seen since the 2019 closing.
By holding preferred shares in Occidental, Berkshire could also sidestep the pain in Occidental’s common shares amid the Covid-19 rout.
Now, as the firm continues accumulating common stock, it leads to the obvious question, will Warren Buffett take over Occidental Petroleum?
With the company having operating leverage and shares trading at sub-6 times this year’s earnings and just 7.5 times 2023 earnings estimates, a complete acquisition certainly isn’t off the table.
Article by Bret Kenwell, Fintel
