Berkshire Hathaway CEO Warren Buffett has recently made big bets on Chevron and Occidental Petroleum, along with other stocks.
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Warren Buffett sat out much of the post-Covid-19 selloff to the detriment of Berkshire Hathaway shareholders. But in the first quarter of 2022—with stocks once again falling—the Oracle of Omaha took action, purchasing some $51 billion of equities and selling less than $10 billion. Those record quarterly purchases came as the S&P 500 slid 5% in the first three months of the year.
While Buffett’s move could prove profitable for Berkshire (ticker:BRK.A, BRK.B) shareholders, the buys themselves aren’t really a signal of increasing bullishness on the market overall. Instead, they’re the application of Buffett’s signature value investing style and his focus on simple and easy-to-understand theses on individual stocks.
Among Berkshire’s largest buys in the first quarter were Chevron (CVX) and Occidental Petroleum (OXY). Those are both big oil producers, with generous cash-return plans. Buffett likes companies that buy back a lot of stock and pay big dividends. Share buybacks mean Berkshire’s ownership stake will rise over time, and dividends throw cash back to the parent company to redeploy elsewhere.
“If you do it at the right price, there’s nothing better than buying back part of your own business,” Buffett said at Berkshire’s annual shareholders meeting on Saturday.
A first-quarter surge in oil prices means lots of earnings and free cash flow to fund those shareholder-return programs at Chevron and Occidental. And both stocks carry valuation multiples well below the S&P 500 average. The index trades at about 18 times expected earnings for the coming year. Chevron stock goes for less than 11 times and Occidental goes for just 7.5 times.
The energy buys weren’t even contrarian in the first quarter: Chevron stock returned 40% including dividends, while Occidental soared 96%. Berkshire likely bought some $17 billion worth of Chevron and about $7 billion of Occidental in the period.
Another Berkshire mega-purchase in the first quarter was the $11.6 billion deal to buy Alleghany (Y). That’s a horizontal acquisition in the insurance industry, with the property-and-casualty reinsurer sliding into Berkshire’s insurance operations. There’s no macro market bet in there either.
Buffett revealed on Saturday that Berkshire had increased its stake in Activision Blizzard (ATVI) to about 9.5% since the start of 2022, suggesting purchases of around $4.5 billion this year. It’s hard to imagine the 91-year-old Buffett being a big videogame enthusiast, and, sure enough, the Activision bet doesn’t have anything to do with the business—it’s a merger-arbitrage play.
Microsoft (MSFT) has agreed to purchase Activision for $95 a share, but the shares have been trading in the high $70s and low $80s in recent months. Buffett expects the deal to go through and for that gap to close. Once again, it’s a straightforward, company-specific thesis.
Another big purchase by Berkshire in the first quarter was HP (HPQ): an 11% stake worth about $4 billion. It’s another cheap stock—trading for about nine times forward earnings at the levels Buffett was buying at—with a big shareholder return program. The maker of personal computers and printers has a dividend yield of 2.7% and directs nearly all of its remaining free cash flow to share buybacks.
Other purchases by Berkshire in the quarter included $9.7 billion of financial stocks, where the company already has large stakes in banks including JPMorgan Chase (JPM), Goldman Sachs Group (GS), and Wells Fargo (WFC). And Berkshire bought more Apple (AAPL) stock, which is Berkshire’s largest equity holding. That’s doubling down on what Buffett already knows and likes.
Berkshire’s own stock rallied 18% in the first quarter as the broader market fell, and got pricier in the process. As a result, CEO Buffett and his vice chairman Charlie Munger pulled back on the company’s own stock buybacks, repurchasing $3.2 billion of Berkshire stock—versus $6.9 billion in the fourth quarter and $27 billion in all of 2021.
All together, the news that the legendary value investor spent a net $41 billion buying stock in the first quarter despite market declines sounds like a bullish signal. But the details of the moves are classic Buffett—and he has never been one for making macro bets.
Write to Nicholas Jasinski at [email protected]
