Warren Buffett recently added another 2.95 million Occidental Petroleum shares to Berkshire Hathaway’s portfolio in June, making Occidental the sixth-largest holding for Buffett’s company. Buffett’s interest in Occidental began in 2019 when Berkshire Hathaway bought $10 billion of preferred shares to help finance Occidental’s acquisition of Anadarko.
Despite challenges in the energy market due to the COVID-19 pandemic, Occidental stabilized its finances by suspending dividends and selling assets to reduce debt. With the recent purchase, Berkshire Hathaway now owns about 28.8% of Occidental’s outstanding shares, valued at approximately $15.9 billion. The company also holds about $8.5 billion of preferred shares and warrants to buy more common stock at $59.62 per share.
In a letter to Berkshire shareholders, Buffett praised Occidental CEO Vicki Hollub and noted that the energy stock is a long-term hold.
Buffett increases stake in Occidental
“Under Vicki Hollub’s leadership, Occidental is doing the right things for both its country and its owners,” Buffett wrote. Occidental is set to enhance its position in the Permian Basin this year, with a $12 billion acquisition expected to close in the third quarter. Hollub will likely employ a similar strategy to the Anadarko acquisition, selling off non-essential assets to reduce Occidental’s debt load.
Occidental’s profits are tied to oil prices, making its revenue susceptible to market fluctuations. The company projected an additional $1 billion in annual earnings from the CrownRock acquisition, contingent on oil prices above $70 per barrel. Current expectations place oil prices in the $80 to $85 range through 2025.
Buffett has consistently purchased shares when Occidental stock trades around 14 times forward earnings and dips below $60. This valuation reflects Hollub’s aggressive strategy to enhance profitability through acquisitions and cost-cutting measures, which could lead to superior long-term growth. For investors considering following Buffett’s lead, Occidental’s combination of stable operations, cash generation, and a strong dividend could make it a solid investment despite the inherent risks in the energy sector.
