Warren Buffet has one of the best investing track records of all time. If you want to find profitable investments, just pay attention to Buffett’s portfolio.
Diving into his holdings, there is one oil stock that stands out. It’s even possible that Buffett will eventually take over the entire company.
For the time being, the shares remain available to the public. If you have $200 that you don’t need for daily necessities, now seems like a good time to make one of Buffett’s biggest bets, thanks to the stock’s recent pullback.
Warren Buffett makes most of his investments through his holding company, Berkshire Hathawaywhich has a portfolio of publicly traded companies valued in the hundreds of billions of dollars. The top 10 holdings in the portfolio are full of recognizable, iconic companies, but the sixth largest holding may surprise you. It’s an oil company that most ordinary citizens have never heard of: Western petroleum (NYSE:OXY).
It’s not hard to figure out what Buffett likes about Occidental. He has commented extensively on the position since he first started buying shares in 2019.
For example, this summer, Buffett told CNBC the first time he read the company’s annual report. “I read every word and said this is exactly what I would do,” he said, adding that the CEO is “running the company the right way.”
Capital management is critical to any business, but especially in the oil industry, where producers must continually search for more resources or acquire additional properties, factoring all associated costs into expected profits. Small mistakes can lead to capital disasters. From his perspective, Buffett thinks Occidental is one of the best when it comes to efficient capital management.
Although he didn’t comment specifically, Buffett may also like Occidental for its exposure to rising oil prices. Most oil investors are optimistic about oil prices as most oil operators struggle with downward price conditions.
However, if you’re confident that oil prices will remain stable or even rise in the long term, Occidental is a great place to be, as it recently agreed to acquire CrownRock for approximately $12 billion. This will mean immediate cash flow for the company, but also additional debt and greater exposure to shale assets that are in deep decline.
West Texas Intermediate (WTI) crude today costs about $70 per barrel. With the acquisition of CrownRock, Occidental expects cash flow per share to be approximately $4.22 per share. If oil prices rise to $75 per barrel, an increase of 7%, Occidental believes free cash flow per share will rise to $5.27 – an increase of 25%. Simply put, Occidental has a lot of upside in a rising price environment.
