Warren Buffett Can't Stop Buying Occidental Petroleum Stock

(MENAFN- ValueWalk) Legendary berkshire hathaway (NYSE:BRK.A) (NYSE:BRK.B) CEO Warren Buffett just can't seem to stop buying more and more shares of oil and gas major Occidental petroleum (NYSE:OXY). Is this a prediction - or just an addiction?

It may be tempting to buy OXY stock hand over fist just because Buffett is doing it. Yet, I encourage you to think for yourself and consider why the Oracle of Omaha would so strongly favor Occidental Petroleum.

It's certainly worth considering whether there's a compelling value proposition with Occidental Petroleum stock right now. However, a deep dive into the latest news will also reveal that Berkshire and Occidental are teaming up to get an essential clean-energy element out of the ground.

Unfortunately, Buffett doesn't typically announce his company's investments in real time. However, legally required filings can give us mere mortals a peek into this investment luminary's holdings.

For example, a filing revealed that Berkshire Hathaway recently purchased 2.6 million shares of OXY stock, collectively valued at over $150 million at the time. If that sounds like a lot of shares, it's really just another addition to Buffett's stake, as Berkshire now holds a whopping 250.6 million shares of Occidental Petroleum.

After that latest purchase, Berkshire Hathaway now holds a 28% stake in Occidental Petroleum. You may have heard chatter about Berkshire taking over Occidental Petroleum completely. However, I haven't found any concrete evidence that Buffett plans to buy out Occidental.

Required filings generally don't indicate why companies like Berkshire Hathaway buy a particular company's shares. Hence, retail investors are left to guess why Buffett is evidently so bullish about Occidental Petroleum.

There may be some clues, though. Buffett is known as a value investor who likes to buy his favorite stocks when they're down. As for OXY stock, Berkshire Hathaway has been known to buy more shares whenever it's under $60 per share.

Surely, then, it's not just a coincidence that Berkshire paid slightly less than $60 per share for those 2.6 million OXY stock shares. I'll admit that I'm tempted to buy Occidental Petroleum stock whenever it gets to that price since Buffett's company tends to put a“floor” there through large-scale purchases.

As of Friday, Occidental Petroleum stock closed at $59.48, so maybe it's not a terrible idea to be like Buffett and grab a few shares. Occidental Petroleum's trailing 12-month price-to-earnings (P/E) ratio of 17.19 also indicates that the company isn't too richly valued.

As for Occidental Petroleum itself, it's a positive sign that its first-quarter adjusted earnings of 63 cents per share beat the analysts' consensus estimate of 58 cents per share.

Additionally, the company offers a forward annual dividend yield of 1.48% , and there's no doubt that Buffett likes to receive those quarterly cash distributions.

Those aren't the only likely reasons that Buffett likes Occidental Petroleum so much. There's a strategic partnership in the works, and it's one that you probably didn't expect.

A recent press release reveals that Berkshire Hathaway Energy subsidiary BHE Renewables has entered into a joint venture with Occidental Petroleum. Through this partnership, Occidental Petroleum subsidiary TerraLithium will extract and produce lithium compounds.

Rest assured that this isn't BHE Renewables' first foray into the lithium market. The company currently“operates 10 geothermal power plants in California's Imperial Valley,” and those plants“process 50,000 gallons of lithium-rich brine per minute to produce 345 megawatts of clean energy.”

Most retail investors probably never thought of Berkshire Hathaway and Occidental Petroleum as lithium producers. Yet, clearly, these two businesses are committed to co-developing their lithium operations, particularly in California.

Suddenly, Buffett's strong interest in Occidental Petroleum makes even more sense. Berkshire isn't just an Occidental shareholder from afar; the two companies are actually working closely on a high-conviction joint venture.

Thus, if you're going to invest in Berkshire Hathaway or Occidental Petroleum, you'll surely want to be bullish on lithium. It's used in electric vehicle batteries, so ironically enough, OXY stock could be considered a clean-energy investment even though Occidental Petroleum is an oil and gas producer.

Of course, a belief in lithium isn't the main reason people buy Occidental Petroleum stock nowadays. Investors often buy the shares just because Buffett likes the company so much.

It's not the ideal reason to buy a particular stock, but at least you'll get to ride along with a financial whale who knows a deep value when he sees it.

MENAFN11062024005205011743ID1108321156