For nearly six decades, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has been putting on a show for Wall Street. Despite being just as fallible as any other investor, the “Oracle of Omaha,” as he’s come to be known, has delivered an aggregate return in his company’s Class A shares (BRK.A) of almost 5,070,000% since taking over as CEO.
Because of Buffett’s otherworldly outperformance of the benchmark S&P 500, he’s drawn quite the following on Wall Street. Investors often eagerly await Berkshire’s Form 13F filings and quarterly operating results for details on what the Oracle of Omaha and his team have been buying and selling in the latest quarter.
Over the previous six quarters, Warren Buffett and his top investment aides, Ted Weschler and Todd Combs, have been decisive net-sellers of equities. More stocks have been sold than purchased to the tune of $56 billion in 18 months.
But just because Berkshire Hathaway’s brightest minds have been selective, it doesn’t mean they haven’t been pressing the buy button. What follows are three magnificent stocks Warren Buffett has spent a collective $96 billion purchasing.
Occidental Petroleum
The first stellar stock Berkshire’s boss can’t stop buying is energy company Occidental Petroleum (NYSE: OXY). Since the start of 2022, Buffett and his team has overseen the purchase of more than 248 million shares of Occidental at an estimated cost of a little over $12.4 billion. Buffett and Co. added another 4.3 million shares of Occidental during the first quarter.
Macro factors are one reason oil stocks are so attractive at the moment. During the COVID-19 pandemic, historic demand uncertainty coerced energy majors worldwide to dramatically reduce their capital expenditures (capex). Although we’re well past the worst of the pandemic, and capex spending has returned to normal, the global supply of crude oil remains constrained. When the supply of an in-demand commodity is tight, it’s not uncommon for the price of that commodity to climb.
Occidental Petroleum generates a disproportionately high percentage of its revenue and cash flow from its drilling segment. If the spot price of crude remains above its historic norm, it’ll benefit Occidental more than its peers.
Warren Buffett is likely also a fan of Occidental Petroleum’s integrated operating structure. Though it is quite reliant on its drilling segment, it also operates chemical plants. If the spot price of crude oil declines, chemical plants can serve as a partial hedge to its cash flow.
But make no mistake about it, Occidental isn’t your typical Buffett investment. The Oracle of Omaha rarely takes sizable stakes in businesses weighed down by debt. Even after Occidental halved its net debt following the acquisition of Anadarko, its $18.55 billion in net debt, as of March 31, 2024, still requires a degree of caution and attention.
Chubb
A second amazing stock that Warren Buffett very clearly can’t stop buying is property & casualty (P&C) insurance company Chubb (NYSE: CB). Estimates from 13F aggregator WhaleWisdom.com suggest that more than $6 billion has been spent purchasing shares of Chubb over the previous three quarters (i.e., since the start of July).
Because Warren Buffett’s trading activity is so closely followed by investors, his company requested and received permission from the Securities and Exchange Commission for the confidential treatment of its Chubb position for a nine-month stretch. The purpose of this secrecy was to allow Berkshire’s smartest investors time to build up a position in Chubb at an advantageous price.
The great thing about the insurance industry is its pricing power. Although the timing of catastrophe losses is unpredictable, claim events at some point in the future are a given for P&C insurers. As a result, companies like Chubb often have little trouble raising premiums to ensure it’s collecting more revenue than it’s paying out in claims. Even when catastrophe losses are lower than normal, insurers can raise premiums with the reasoning that claim events are inevitable.
Another reason Buffett and his colleagues are likely bullish on Chubb is the Federal Reserve’s stance on monetary policy. Since March 2022, the nation’s central bank raised lending rates at the steepest pace in four decades. The revenue insurers collect that isn’t paid out in claims (known as “float”) is typically invested in ultra-safe, interest-bearing, short-term Treasury bills. The longer the U.S. inflation rate remains stubbornly high, the more net-investment income Chubb is going to generate from its float.
Furthermore, Buffett and his team love a hearty capital-return program and a management team that doesn’t take excessive pay — both of which are attributes of Chubb. The company’s board authorized an up to $5 billion share buyback program in June 2023, and recently green-lit the 31st consecutive year with a dividend increase.
Berkshire Hathaway
The third magnificent stock Warren Buffett can’t stop buying isn’t going to be found in Berkshire’s quarterly filed 13Fs. If investors look at the final page of Berkshire’s quarterly operating results, just prior to the executive certifications, they’ll find evidence of Warren Buffett’s favorite stock to buy. Namely, shares of his own company.
Prior to July 2018, Buffett and his now late right-hand man, Charlie Munger, were only allowed to repurchase Berkshire stock if shares fell to or below 120% of book value (i.e., no more than 20% above book value). Since shares never fell to this threshold, not a cent was spent on buybacks for a long time prior to July 2018.
On July 17, 2018, Berkshire’s board reworked the covenants governing buybacks. As long as Berkshire Hathaway has at least $30 billion in cash, cash equivalents, and U.S. Treasuries on its balance sheet — it ended March 2024 with $189 billion — and Buffett believes shares of the company are intrinsically cheap, buybacks can commence with no ceiling or end date.
For 23 consecutive quarters, Warren Buffett has overseen the repurchase of more than $77 billion worth of his company’s stock.
The beauty of share buybacks for a company like Berkshire that delivers steady or growing net income (sans unrealized investment gains/losses) is that a shrinking outstanding share count has a positive impact on earnings per share (EPS). In other words, this aggressive repurchase program is making Berkshire Hathaway stock appear more attractive to value investors.
Additionally, buybacks are incrementally increasing the ownership stakes of Berkshire’s longtime investors. Since Buffett’s company doesn’t pay a dividend, share buybacks are the easiest way for one of Wall Street’s greatest asset managers to reward investors who share in his long-term vision.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
3 Magnificent Stocks Warren Buffett Can’t Stop Buying was originally published by The Motley Fool
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