We recently compiled a list titled Buffett Stock Portfolio: Top 10 Stock Picks for 2024. In this article, we will look at where Occidental Petroleum Corporation (NYSE:OXY) ranks among the top 10 stocks in Buffet’s portfolio.
Warren Buffet is one of the most accomplished investors in the history of Wall Street. According to Bloomberg’s Billionaire Index 2024, the Oracle of Omaha has a net worth of $143 billion, making him the ninth richest person in the world. His wealth would have been much more had he not decided to donate most of his vast fortune to charities. Since 2006, Buffet has donated over $55 billion to various charitable organizations, with a majority of the gifts going to the Bill & Melinda Gates Foundation.
Buffet rose to prominence in 1965, after transitioning his investment firm into a conglomerate that held stakes in companies belonging to a broad range of industries. Between then and 2023, his firm earned average annual returns of 19.8%, outperforming most stock indices that delivered returns around the 10 percent mark during this period. However, this year, Buffet seems to be in a defensive mode and is currently in the news for his sell-off spree, significantly reducing his investments in several notable companies.
There have been mixed opinions about Buffet hunkering down on stocks. Edward Jones analyst, Jim Shanahan, said that the actions make him ‘concerned’ about Buffet’s outlook for the stock market and the American economy. In contrast, Daniel Ives, a Wedbush analyst, is less worried and believes that despite the selling spree, Berkshire still holds the top positions in those stocks by large margins, which should not be viewed as a ‘smoke signal for bad news ahead’.
So what will Warren Buffet do with all that cash? Andrew Bary, the associate editor at Barron’s, recently stated that the billionaire has been on the look for a major acquisition for some while now, which has so far proven elusive. He believes the Berkshire CEO may just hold the cash for some while, earn interest on Treasury Bills, and wait for potential opportunities to grab in the stock market.
Another factor that has likely contributed to Warren Buffet dumping stake in some of his top stocks is the speculation around the increase in capital gains tax. The debate on the tax rate has been on for some time now and has even become a talking point in the run-up to the presidential elections. Vice President, Kamala Harris, during a speech in New Hampshire this month, proposed to raise the long-term capital gains tax for wealthy individuals to 28%.
The current tax rate is 21% when a gain is realized. Massive gains over the long term result in a large tax. Warren Buffet invested in stocks he is currently selling a long time ago, and hence, is sitting on handsome gains. The rationale behind selling these stocks could be to capitalize on the gains as much as possible on the current low tax rate, instead of paying hefty taxes later if the rate were to be increased.
Methodology
We scanned Warren Buffet’s portfolio, as of June 30, 2024, and picked the top 10 stocks according to their stake value. The figures were sourced from the Insider Monkey Database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Occidental Petroleum Corporation (NYSE:OXY)
Stake Value as of Q2 2024: $16,090,394,458
Occidental Petroleum Corporation (NYSE:OXY) is an American energy company engaged in hydrocarbon exploration in the United States and the Middle East. It also manufactures petrochemicals, with operations in the United States, Canada, and Chile. Warren Buffet first invested in the company in 2022 and continues to expand his shares. According to a recent report in Barron’s, the billionaire now holds a 28% stake in Occidental, representing 5.74% of his portfolio.
It is one of the top picks from the Buffet stock portfolio. Here is what the Berkshire Hathaway CEO wrote about the company in his 2023 letter to shareholders:
Under Vicki Hollub’s leadership, Occidental is doing the right things for both its country and its owners. No one knows what oil prices will do over the next month, year, or decade. But Vicki does know how to separate oil from rock, and that’s an uncommon talent, valuable to her shareholders and to her country.
During Q2 2024, the company reported its highest quarterly production in four years and generated $1.3 billion in cash flow. EPS for the quarter stood at $1.03, which comfortably surpassed analysts’ expectations of 77 cents per share. The strong results were driven by exceptional performance across the company’s business segments, most notably from the new wells in the Permian Basin, and a higher production uptime in the Gulf of Mexico.
The company appears to be headed in the right trajectory in terms of financial performance. Occidental exited the quarter with $1.8 billion in cash. Since the start of the year, it has also closed around $1 billion of Permian Basin divestitures, with the sale proceeds going into reducing the company’s debt. It plans to further reduce debt by $3 billion during Q3. The management is determined to strengthen the balance sheet through excess cash flow and divestitures until Occidental reaches its debt target of $15 billion or less.
On August 1 this year, the company completed a $12 billion acquisition of CrownRock, L.P., a Midland-based oil and gas producer. The move aims at expanding Occidental’s footprint in the Midland Basin. During the Q2 earnings call later that month, VP and CEO, Sunil Mathew, stated that following the acquisition, the company now expects daily production to increase from 1.25 million to 1.32 million BOE per day. Occidental is also currently involved in exploratory discoveries in Ocotillo and Tiberius, with final investment decisions awaited.
Occidental Petroleum Corporation (NYSE:OXY) is one of the best stocks to buy now, with 62 hedge funds having investments in the company, as of Q2 2024. Wall Street analysts are also bullish on the stock and expect a 25% upside in its share price.
Overall, OXY ranks 6th among the Buffett Stock Portfolio: Top 10 Stock Picks for 2024. While we acknowledge the potential of OXY as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than OXY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published on Insider Monkey.