There is probably no money manager that is as closely monitored on Wall Street as the financial sector Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett. In addition to being an open book and willingly sharing the qualities he looks for when putting his company’s capital to work, the Oracle of Omaha has since taking over in the mid-1960s.
While Buffett is an unapologetic optimist who has repeatedly warned investors not to bet against America, his short-term actions don’t always match his long-term ethos.
Over a period of seven quarters – which will likely be eight, given Berkshire’s aggressive sales Bank of America stocks in the quarter ending September — Warren Buffett and his top investment advisers, Todd Combs and Ted Weschler, have collectively sold nearly $132 billion more in stocks than they bought. As of June 30, Berkshire’s cash holdings, which include short-term U.S. Treasury bonds, stood at a record $276.9 billion.
Without putting it bluntly, Buffett’s actions appear to be a stark warning to Wall Street that the stock market is historically pricey.
But despite this warning, there are a select few stocks that have caught the attention of the Oracle of Omaha. One of the most expensive stock markets in history hasn’t stopped Buffett from jumping into the next four unstoppable stocks.
Sirius XM Holdings
The first is the satellite radio operator Sirius XM Holdings (NASDAQ: SIRI)which in September merged with Liberty Media’s Sirius XM tracking stock, Liberty Sirius XM Group, and executed a 1-for-10 reverse split.
Between October 9 and 11, a Form 4 filing with the Securities and Exchange Commission showed that Berkshire acquired approximately 3.56 million shares of Sirius % of the company’s outstanding shares. shares.
Buffett is a big fan of sustainable moats, and this is something Sirius XM definitely brings up. As the only licensed satellite radio operator, Sirius XM has a legal monopoly. While it still deals with terrestrial and online radio for listeners, it is the only satellite radio operator to offer superior subscription pricing.
To build on this point, the sales channels are clearly different from those of traditional radio operators. While the latter generate most of their revenue from advertising, Sirius XM generated 77% of its net revenue from subscriptions in the first half of 2024. Subscription revenues are less volatile than corporate advertising spend, leading to more predictable cash flow for Sirius. XM.
The valuation is also very logical. When Berkshire’s brightest minds, including Buffett, bought shares of Sirius XM less than two weeks ago, it was valued at less than eight times full-year earnings and had a yield close to 5%. Buffett is an avid value investor and appreciates robust capital return programs.
Western petroleum
A second unstoppable stock that undoubtedly has Warren Buffett’s undivided attention is the integrated oil and gas giant. Western petroleum (NYSE:OXY). Since the start of 2022, Berkshire Hathaway’s position in Occidental has grown from zero to nearly 255.3 million shares.
The Oracle of Omaha did not put more than $13 billion into Occidental Petroleum common stock on a whim. More than likely, he and his team believe the spot price of crude oil will remain high or rise even further, which would disproportionately benefit Occidental. Although the company has downstream chemical operations, most of its net sales and operating cash flow can be traced to the higher-margin drilling segment.
The good news for Occidental is that there are well-defined macro factors that could support a sustainably higher crude oil price. More specifically, several years of underinvestment of capital by global energy companies during the COVID-19 pandemic, coupled with Russia’s invasion of Ukraine in February 2022, have created uncertainty and/or tightness in oil supply that has been positive for the spot price of crude oil.
Occidental has also vastly improved its previously debt-ridden balance sheet after acquiring Anadarko in 2019. It ended June 2024 with net long-term debt of $18.4 billion, representing a net debt reduction of almost 50% since its peak.
The final piece of the puzzle is that Berkshire Hathaway holds warrants on more than 83.8 million shares of Occidental common stock with an exercise price of $59.624 per share. It is in the interests of Buffett and Berkshire if Occidental’s share price remains well above this strike price.
Chubb
The third great stock that Warren Buffett can’t stop buying, even despite his warning to Wall Street that value is hard to come by, is general insurance (P&C). Chubb (NYSE: CB).
Although the Oracle of Omaha is generally transparent about his trading activities, on rare occasions he has requested confidential treatment for one or more securities when filing Berkshire Hathaway’s Quarterly Form 13F. If he can build a position in one or more securities without disclosing which stocks he’s buying, Buffett can get a more advantageous cost basis. In mid-May, the mysterious shares were revealed to be Berkshire Chubb.
Between July 1, 2023 and June 30, 2024, the Berkshire chief bought more than 27 million Chubb shares, worth about $8.2 billion, as of the closing bell on October 17.
The great thing about the insurance industry is that it is boring. While catastrophe losses are inevitable for property and casualty insurers, they are typically able to increase premiums in any economic climate. Mother Nature may be unpredictable, but sporting premium pricing power gives Chubb the opportunity to stay one step ahead.
Chubb is also benefiting from a notable rise in Treasury yields, which comes as the Federal Reserve raises rates at the fastest pace in four decades. Insurers invest their money (i.e. the premiums they collect that are not paid out as claims) in super-safe government bonds with a short term. Higher yields have increased interest income for insurers.
Berkshire Hathaway
The Fourth Unstoppable Stock Warren Buffett can’t stop buying, and what can easily be described as his favorite stock to buy is shares of his own company.
Before July 2018, the Oracle of Omaha and right-hand man Charlie Munger (Munger passed away last November) had to sit on their hands. Share repurchases were only permitted if Berkshire Hathaway’s shares fell to or below 120% of book value (i.e. no more than 20% above market value). However, Berkshire’s stock never fell to this threshold, meaning Buffett and Munger couldn’t spend a dime on buybacks.
On July 17, 2018, Berkshire’s board of directors changed its buyback rules to give Buffett another tool to enhance shareholder value. As long as Berkshire has at least $30 billion in combined cash, cash equivalents and U.S. Treasuries on its balance sheet, and Buffett views his company’s stock as intrinsically cheap, buybacks can continue without a cap or end date.
Warren Buffett has purchased Class A (BRK.A) and/or Class B (BRK.B) shares for 24 consecutive quarters, totaling nearly $78 billion. In other words, Buffett has spent more than twice as much buying shares of his own company than buying shares of top companies. Apple.
In addition to incrementally increasing Berkshire shareholders’ ownership stake and promoting long-term investing, a steady diet of buybacks should reduce the company’s number of shares outstanding and boost earnings per share (EPS). In short, it will make Berkshire Hathaway stock more attractive to fundamentally-oriented investors.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Sean Williams holds positions at Bank of America and Sirius XM. The Motley Fool holds positions in and recommends Apple, Bank of America and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Amid Warren Buffett’s $132 Billion Warning to Wall Street, He Can’t Stop Buying Shares of These Four Unstoppable Stocks was originally published by The Motley Fool
