Few if any billionaire money managers are more respected on Wall Street Berkshire Hathawayof (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett. Since ascending to the role of CEO in the mid-1960s, the Oracle of Omaha has overseen a cumulative return that surpassed 5,771,000% by the closing bell on November 22.
One of the reasons why investors value Buffett so much is his Willingness to be open and frank about stocks and the US economy. He regularly outlines the characteristics he finds in “great companies” in his annual letter to shareholders as well as during Berkshire’s annual shareholder meetings.
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Berkshire Hathaway CEO Warren Buffett. Image source: Motley Fool.
But what may come as a surprise is that Warren Buffett has been a decisive net seller of $166.2 billion worth of stocks for eight consecutive quarters. This selling activity seems to be a clear warning that stocks are historically expensive and that valuations are difficult to come by.
However, this does not mean that all shopping activities have stopped. As of 2018, Warren Buffett has put his company’s $91 billion in cash to work in the following two unstoppable stocks.
As of July 2018, there is no stock on the planet Warren Buffett has bought more frequently than shares of his own company. He repurchased Berkshire Hathaway shares for 24 consecutive quarters — a streak that ended in the quarter ending in September — with those purchases totaling nearly $78 billion. Put another way, the Berkshire chief spent more than he bought his company’s stock apple And Bank of America at cost, On a combined basis!
Before the midpoint of 2018, it was nearly impossible for Warren Buffett to repurchase shares of his company’s stock. Rules governing buybacks require Berkshire shares to trade at or below 120%. Book value To shop again. This is a threshold that Berkshire Hathaway’s stock has never reached, leading to no buyback activity.
But on July 17, 2018, Berkshire’s board amended buyback rules to give its chief and then-right-hand man Charlie Munger, who died in November 2023, more freedom of action. The new rules allowed for unlimited share buybacks with no expiration date as long as Berkshire had at least $30 billion of combined cash, cash equivalents, and U.S. securities on its balance sheet. Treasuries are, and Buffett sees his company’s stock as intrinsically cheap.
Because Berkshire Hathaway does not pay dividends, share repurchases are the easiest way for Oracle of Omaha to reward investors. Buying back stock over time is increasing investors’ ownership stake and encouraging the long-term thinking so dear to Buffett and his top advisers.
Additionally, a regular dose of share repurchases for a company with stable or growing net income, such as Berkshire Hathaway (without experienced investment gains/losses), should provide a lift to earnings per share (EPS). In short, the buybacks are helping to make Berkshire more fundamentally attractive to investors.
However, Berkshire’s stock has, in recent months, been trading at its highest multiple of book value since 2008. With Warren Buffett being an avid value investor, it’s perhaps no surprise that he decided to repurchase shares of his company in the latest. quarterly
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Another unstoppable stock that Warren Buffett has been buying by the handful in recent years is the energy goliath. Occidental Petroleum(NYSE: OXY ). Based on an estimated cost of $50.40 per share, the roughly 255.3 million shares Occidental Buffett has bought since the start of 2022 equate to a $12.9 billion investment, according to 13F aggregator WhaleWisdom.com.
The Oracle of Omaha and his team wouldn’t put that amount to work in an integrated oil and gas stock without a rock-solid investment thesis. What we are seeing is a very clear bet on the spot price of crude oil rising over time.
During the Covid-19 pandemic, a historic drop in demand forced energy companies around the world to cut their capital expenditures. Nearly three years of reduced capital spending will make it difficult to rapidly increase global crude oil production anytime soon. When combined with Russia’s invasion of Ukraine, it has created a kind of perfect storm to drive up the spot price of crude oil.
Higher energy commodity prices are particularly important for Occidental Petroleum. Although it is an integrated operator that also brings in revenue from its downstream chemical plants, Occidental generates a disproportionate amount of its operating cash flow from its upstream drilling segment. Just keep in mind that this pendulum works both ways—that is, if the spot price of crude oil falls, its cash flow can suffer disproportionately.
It is also worth noting that Buffett’s company is holding warrants to purchase 83,858,848 common shares of Occidental at an exercise price of $59.624 per share. The warrants allowed Buffett to make billions of dollars in profits by buying 700 million shares of Bank of America stock in the summer of 2017 at an exercise price of just $7.14 per share. If Occidental’s share price stays above $59.624, it is in Berkshire’s interest. The exercise price, which could spur a lot of buying activity on Buffett’s part.
But at the end of the day, Occidental is anything but a typical Buffett investment. It closed the September quarter with net debt of $25.5 billion, plenty of leverage for a company tied to the spot price of crude oil. The Oracle of Omaha generally steers clear of deeply indebted companies — even if they provide a basic necessity like oil.
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Bank of America is an advertising partner of Motley Fool Money. Sean Williams Positions at Bank of America. The Motley Fool has recommended positions in Apple, Bank of America, and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. Motley Fool has a Disclosure Policy.
