Warren Buffett
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Berkshire Hathaway continued to buy more shares of Occidental Petroleum in recent days, purchasing a total of about $580 million of stock on Wednesday, Thursday and Friday. That lifted its stake in the large energy company to $9.9 billion, according to a filing late Friday.
Berkshire Hathaway (Ticker BRK/A, BRK/B) now holds 163.4 million shares of Occidental Petroleum (OXY), a 17.4% stake, after buying a total of 9.9 million shares from Wednesday through Friday. Berkshire paid in a range of $57 to $60 a share for its latest purchases. Occidental shares gained 2.7% to $60.44 Friday.
Occidental has been the top-performing stock in the S&P 500 so far this year by a wide margin with a gain of 108% through Friday. Berkshire’s purchases have helped drive that advance.
Berkshire CEO Warren Buffett began buying shares in Occidental earlier this year and has rapidly increased Berkshire’s stake since March.
Since mid-June, Berkshire has purchased about 20 million shares. Buffett seems to like buying Occidental shares at a price of $60 or less. Barron’s estimates that Berkshire’s total cost basis for its Occidental stake is around $53 a share, meaning Berkshire now has a paper profit of more than $1 billion.
As a holder of more than 10% of Occidental, Berkshire must disclose trades in the stock within two business days via a filing with the Securities and Exchange Commission.
The fresh purchases may fuel speculation that Berkshire will add further to its stake and reach 20%, or potentially bid for the entire company. At 20%, Berkshire likely would get a different accounting treatment for Occidental that would let it reflect a proportional share of Occidental’s earnings in its own results.
Berkshire also owns $10 billion of Occidental preferred stock paying an 8% dividend that it purchased in 2019 and it holds warrants to purchase 83.9 million Occidental common shares at an exercise price of $59.62. Those warrants now are slightly in the money.
Occidental said on its earnings conference call in May that it expected to begin a $3 billion share repurchase program in the second quarter. Assuming that program is executed, Berkshire’s percentage stake in the company will rise.
Occidental has been focused on repaying debt associated with its purchase in 2019 of Anadarko Petroleum. Debt has steadily come down in recent quarters due to ample profits and net debt stood at $23 billion at the end of the first quarter.
Buffett is enamored of energy stocks. He was a big buyer of Chevron (CVX) in the first quarter and now holds $23 billion of the energy giant.
Buffett may view energy stocks as inexpensive and a hedge against higher inflation. Even with the run-up in the stock, Occidental trades for less than six times projected 2022 earnings. Buffett likes American companies, and Occidental gets about 80% of its energy production domestically.
Write to Andrew Bary at [email protected]
