Buffett doubles down on Occidental Petroleum

Warren Buffett’s Berkshire Hathaway has made some notable changes to its stock portfolio recently.

"If Buffett's not buying his own stock, then why should we?" https://t.co/jfECtk6zEy

— Jesse Felder (@jessefelder) September 13, 2024

The company sold a significant portion of its Apple stake in the second quarter, reducing the investment by about half. This stake was worth around $80 billion based on Apple’s current share price. Berkshire Hathaway now holds an estimated $300 billion in cash and equivalents on its balance sheet. This figure has been increasing steadily. Much of the proceeds from the Apple stock sale are currently held in cash and U.S. Treasuries.

Berkshire Hathaway (+23.8%) is outperforming the S&P 500 (+18.0%) and 4 of the top 6 companies by market capitalization year-to-date: Alphabet (+12.7%), Microsoft (+14.5%), Apple (+15.6%), and Amazon (+22.7%). #Buffett $BRK.A $BRK.B

— David Kass (@DrDavidKass) September 14, 2024

Buffett is likely waiting for the next significant investment opportunity. However, Berkshire Hathaway did make several new stock purchases in the second quarter. One of Buffett’s favored companies, and a stock he frequently buys, is Occidental Petroleum.

Warren Buffett’s Berkshire Hathaway recently joined a rarefied club of companies worth $1 trillion. Not everyone’s celebrating. https://t.co/S8D7bw9KAj via @WSJ

— David Kass (@DrDavidKass) September 13, 2024

Earlier this week, Berkshire Hathaway vice chairman Ajit Jain sold 200 shares of $BRK.A for $139 million.

Tonight's news: Warren Buffett gifted 20 Class B shares to one or two unnamed individuals yesterday.

Buffett now owns 207,963 A shares and 1,333 B shares. pic.twitter.com/4QemTM2Czx

— Kevin Carpenter (@kejca) September 13, 2024

As one of the largest U.S. oil and natural gas companies, Occidental reported its highest production in four years last quarter. This resulted in $1.3 billion in free cash flow. Recently, the company acquired CrownRock for $12 billion. This added new acreage for production in the Midland basin. The acquisition aims to boost free cash flow and consolidate Occidental’s position in the U.S. market. Buffett now owns an estimated 27% of Occidental Petroleum’s stock. This signals a strong bet on continued U.S. demand for natural gas.

Buffett’s big investment move

Natural gas may benefit from growing electricity demand driven by artificial intelligence (AI) and cloud computing markets. Although natural gas prices are currently low, this could represent a buying opportunity for long-term investors. Occidental Petroleum’s current trading P/E ratio is 13.4. Another new addition to Berkshire Hathaway’s portfolio is Ulta Beauty. The stock was added in the second quarter after shares dropped by more than 40% from their recent high. Ulta Beauty is experiencing challenges following a boom in beauty supply sales related to the COVID-19 pandemic. Comparable sales declined by 1.2% in the second quarter, compared to 8% growth in the prior year. Customer spending on beauty products and store visits have decreased. This raises concerns about market saturation, given Ulta’s 1,500 stores. However, Ulta Beauty has shown strong earnings growth over the long term. Operating income increased by 295% over the past decade. The company has also consistently repurchased stock, reducing outstanding shares by 26.8%. Buffett’s team likely views Ulta Beauty as a quality retailer facing short-term difficulties. Ulta Beauty is currently trading at a low P/E ratio of 14.4 and is actively buying back stock. This could make it an attractive investment for those confident in the brand. As Warren Buffett adjusts his portfolio, he’s placing significant bets on Occidental Petroleum and Ulta Beauty. This indicates his long-term optimism in these companies despite short-term challenges.