Why Warren Buffett loves oil giant Occidental Petroleum

Famed investor Warren Buffett is steadily snowballing a stake in Occidental Petroleum Corp. in what could end up being his biggest-ever acquisition. His Berkshire Hathaway Inc. on Friday won approval to buy as much as 50% of the shares. Some investors believe it’s a step toward a full takeover, which may end up costing more than $50 billion.

Warren Buffett loves oil giant
Warren Buffett loves oil giant

Oil

Inflation looks to be the mega-trend for the first half of the 2020s and crude oil is one of the best natural hedges out there. Russia’s ..

With investments across the energy sector from utilities to solar power, Buffett claims to be a realist in the debate around fossil fuels. “People that are on the extremes of both sides are a little nuts,” he said at a Berkshire shareholder meeting in 2021.

But on the flip side, this created a good value play for Buffett. When crude turned around late last year and was supercharged by Russia’s invasion of Ukraine, Occidental was best-placed to benefit. The stock is the best performer in the S&P 500 this year, up more than 140% compared with the index’s 11% decline.

“Oxy started this year heavily indebted with massive oil exposure,” said Bill Smead, who manages $4.8 billion at Smead Capital Management Inc. and is a top 20 shareholder i ..

Cash

Too much cash has been Berkshire’s biggest investing challenge over the past few years. The conglomerate had about $105 billion on hand ..

next five years, according to Greggory Warren of Morningstar Research Services LLC. Inflation at the highest in 40 years is a great incentive to put that money to work.

Occidental would work better as a subsidiary of Berkshire than a stock holding “given the volatility that exists in the energy/commodity markets,” Warren said. “This could end up, though, evolving into a slow-motion takeover where Berkshire buys up to the stakes that FERC allows it to acquire until it can acquire Oxy wh ..

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