When it comes to the big investment moguls on Wall Street, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett is in a class of his own. Since becoming CEO in the mid-1960s, he has overseen a total return of nearly 5,500,000% on his company’s Class A shares (BRK.A) through the closing bell on August 23.
If you the Dow Jones Industrial Average, S&P 500And Nasdaq Composite so resolutely in the dust, as Warren Buffett has done for almost 60 years, you’re going to attract quite a crowd. Riding on Buffett’s success has been an undeniably effective money-making strategy for decades.
In theory, it’s easy to mirror the trades of the Oracle of Omaha and its loyal top advisers, Todd Combs and Ted Weschler. The quarterly 13F forms provide a quick snapshot of what Wall Street’s top money managers have been buying and selling.
However, Berkshire Hathaway’s 13F misses a big part of the story. Namely, a company whose shares have been bought by Buffett for 24 consecutive quarters.
Despite being a selective buyer, Buffett is betting big on oil stocks
While Warren Buffett has repeatedly argued that investors would be wise not to bet against America, his long-term suggestions don’t always align with what he and his investment team do in the short term.
In each of the last seven quarters (ended June 30), Berkshire’s dynamic investment trio has been net sellers of stocks to the tune of $131.6 billion cumulatively. No company has contributed more to this net selling activity than Berkshire’s largest holding company, AppleBuffett and his team have sold more than 500 million shares of the tech giant since October 1, 2023.
Despite the fact that it is a terribly selective buyer of late, the one stock Berkshire’s 13Fs shows he’s been buying regularly for more than two years is an integrated oil and gas company Occidental petroleum (NYSE: OXY).
Just over 10% of Berkshire Hathaway’s 45-stock, $315 billion investment portfolio is invested in oil stocks — specifically, Occidental and ChevronEnergy stocks have rarely played a major role in Berkshire’s portfolio over the past 25 years, so this is a significant departure from Buffett’s traditional investing strategy.
Since the start of 2022, Buffett has overseen the purchase of more than 255 million shares of Occidental Petroleum stock. The thesis behind this steady buying activity could be related to tight global crude oil supplies.
For roughly three years during the COVID-19 pandemic, a historic dip in demand for energy commodities encouraged oil and gas producers to slash capital expenditures (capex). Even as capex levels have returned to normal, several years of reduced spending have tightened global supply and sent the spot price of oil soaring.
While a higher spot price for crude oil lifts all drillers, Occidental generates a higher percentage of its revenue from drilling than most integrated operators. In other words, it is more sensitive to changes in the spot price of crude oil. If supply constraints persist in the coming years, this should uniquely benefit Occidental’s cash flow generation and profits.
Meet the Stocks Warren Buffett Has Bought for 24 Consecutive Quarters
Buffett has been buying shares of Occidental Petroleum on a regular basis since early 2022, but this is nowhere near the number of shares he has bought every quarter for six years in a row.
As I mentioned earlier, you won’t find any reference to these purchases in Berkshire Hathaway’s 13F quarterly report. Instead, you’ll have to look on the last page of Berkshire’s quarterly results, just before the executive certifications. Here you’ll find evidence of the company’s stock buyback activity, and you’ll conclude that the stocks the Oracle of Omaha can’t stop buying on a quarterly basis are his own company’s!
Buying back Berkshire Hathaway shares hasn’t always been easy. Before mid-July 2018, buybacks were limited to cases where Berkshire’s shares were trading at or below 120% of book value. At no point in time for a lot of In the years leading up to July 2018, the company’s share price had fallen below this threshold, meaning no share buybacks were made.
On July 17, 2018, the company’s board of directors revised the share buyback covenants to give Warren Buffett and his then-right-hand man Charlie Munger, who died in November 2023, the ability to conduct share buybacks themselves if they saw fit.
Under the new criteria, share buybacks can be made without an end date or ceiling, as long as:
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Berkshire Hathaway has at least $30 billion in cash, cash equivalents and U.S. Treasury securities on its balance sheet; and
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Warren Buffett (and earlier Charlie Munger) believe that stocks are inherently cheap.
Buffett’s company ended June with a record $277 billion in cash, cash equivalents and U.S. Treasuries, giving the Oracle of Omaha more than enough confidence to continue buying back Berkshire shares. The roughly $345 million in stock buybacks conducted in the second quarter raised Buffett’s cumulative buybacks of his own company’s stock to nearly $78 billion over the past 24 quarters.
Why the heavy emphasis on stock buybacks by Warren Buffett and his team? First, it is a gradual increase in the ownership stakes of existing shareholders over time. This promotes the long-term ethic that Munger and Buffett have advocated for decades.
Additionally, gradually reducing the company’s outstanding shares through buybacks should provide a nice boost to earnings per share (ignoring variations in unrealized investment gains/losses). Companies that generate stable net income, such as Berkshire Hathaway, may be seen as fundamentally more attractive to investors because of the buyback program.
Even though Berkshire Hathaway’s shares are historically expensive (162% of book value as of August 23), a cash reserve of nearly $277 billion gives Warren Buffett more than enough reason to continue buying back his favorite stocks.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Warren Buffett Has Bought Shares Of This Company For 24 Consecutive Quarters — And It’s Not Occidental Petroleum was originally published by The Motley Fool
