For almost six decades Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has put on a show for Wall Street. Despite being as fallible as any other investor, the “Oracle of Omaha,” as he has become known, has achieved a total return on his company’s Class A shares (BRK.A) of nearly 5,070,000% since he took over the position of CEO.
Because of Buffett’s otherworldly outperformance versus the benchmark S&P500, he has quite a following on Wall Street. Investors often eagerly await Berkshire’s Forms 13F and quarterly results for details on what the Oracle of Omaha and his team bought and sold last quarter.
Over the past six quarters, Warren Buffett and his top investment advisors, Ted Weschler and Todd Combs, have been decisive net sellers of stocks. More shares were sold than bought in 18 months, amounting to $56 billion.
But just because Berkshire Hathaway’s brightest minds have been selective doesn’t mean they haven’t pressed the buy button. What follows are three great stocks that Warren Buffett bought together for $96 billion.
Western petroleum
The first great stock that Berkshire’s boss can’t stop buying is an energy company Western petroleum (NYSE:OXY). Since early 2022, Buffett and his team have overseen the purchase of more than 248 million shares of Occidental at an estimated cost of just over $12.4 billion. Buffett and Co. added another 4.3 million shares of Occidental in the first quarter.
Macro factors are one of the reasons why oil stocks are so attractive right now. During the COVID-19 pandemic, historic demand uncertainty forced energy giants worldwide to dramatically reduce capital expenditure (capex). Although the worst of the pandemic is long behind us and investment spending has returned to normal, the global supply of crude oil remains limited. When supply of a high-demand commodity is tight, it is not unusual for the price of that commodity to rise.
Occidental Petroleum generates a disproportionately high percentage of its revenues and cash flow from its drilling segment. If the spot price of crude oil remains above its historical norm, Occidental will benefit more than its peers.
Warren Buffett is probably also a fan of Occidental Petroleum’s integrated corporate structure. While the company is quite dependent on its drilling segment, it also operates chemical plants. If the spot price of crude oil falls, chemical plants can serve as a partial cash flow hedge.
But make no mistake: Occidental is not your typical Buffett investment. The Oracle of Omaha rarely takes significant stakes in debt-ridden companies. Even after Occidental halved its net debt following the Anadarko acquisition, its $18.55 billion net debt as of March 31, 2024 still requires a degree of caution and attention.
Chubb
A second great stock that Warren Buffett clearly can’t stop buying is P&C Insurance. Chubb (NYSE: CB). Estimates from 13F aggregator WhaleWisdom.com suggest that more than $6 billion has been spent purchasing Chubb stock over the past three quarters (i.e. since early July).
Because Warren Buffett’s trading activities are so closely watched by investors, his company sought and received permission from the Securities and Exchange Commission to keep his Chubb position confidential for a nine-month period. The purpose of this secrecy was to give Berkshire’s smartest investors time to build a position in Chubb at an advantageous price.
The great thing about the insurance industry is its pricing power. While the timing of catastrophic losses is unpredictable, loss events at some point in the future are a given for property and casualty insurers. As a result, companies like Chubb often have little problem raising premiums to ensure they generate more revenue than they pay out in claims. Even if catastrophe losses are lower than normal, insurers may increase premiums on the reasoning that claims events are inevitable.
Another reason why Buffett and his peers are likely bullish on Chubb is the Federal Reserve’s stance on monetary policy. Since March 2022, the country’s central bank has raised interest rates at the fastest pace in four decades. The income that insurers collect that is not paid out in claims (known as ‘float’) is typically invested in ultra-safe, short-term interest-bearing government bonds. The longer U.S. inflation remains stubbornly high, the more net investment income Chubb will generate from its float.
Furthermore, Buffett and his team like a robust capital return program and a management team that doesn’t receive excessive compensation – both hallmarks of Chubb. The company’s board of directors approved a share buyback program of up to $5 billion in June 2023, and recently greenlit a dividend increase for the 31st consecutive year.
Berkshire Hathaway
The third great stock that Warren Buffett can’t stop buying won’t be in Berkshire’s quarterly 13Fs. If investors look at the last page of Berkshire’s operating results, just before board certifications, they will find evidence of Warren Buffett’s favorite stocks to buy. Namely shares of his own company.
Before July 2018, Buffett and his now-deceased right-hand man, Charlie Munger, were only allowed to buy back shares of Berkshire if the stock fell to or below 120% of book value (i.e. no more than 20% above book value). Because shares never fell below this threshold, not a cent was spent on buybacks for long time before July 2018.
On July 17, 2018, Berkshire’s board restated the repurchase covenants. As long as Berkshire Hathaway has at least $30 billion in cash, cash equivalents and U.S. Treasuries on its balance sheet — it ended March 2024 with $189 billion — and Buffett believes the company’s shares are intrinsically cheap, buybacks can begin with no cap or end date.
For 23 consecutive quarters, Warren Buffett has overseen stock buybacks worth more than $77 billion.
The beauty of share buybacks for a company like Berkshire that generates stable or growing net income (without unrealized investment gains/losses) is that a smaller number of shares outstanding positively impacts earnings per share (EPS). In other words, this aggressive buyback program makes Berkshire Hathaway stock look more attractive to value investors.
Moreover, buybacks incrementally increase the ownership stake of Berkshire’s legacy investors. Because Buffett’s company doesn’t pay dividends, buying back shares is the easiest way for one of Wall Street’s biggest money managers to reward investors who share its long-term view.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
3 Great Stocks Warren Buffett Can’t Stop Buying was originally published by The Motley Fool
