Billionaire Warren Buffett could be among a small group of bullish energy investors since the Chairman and CEO of Berkshire Hathaway ( (BRK.A Get Berkshire Hathaway Inc. Report) bulked up his stake in oil producer Occidental to 18.7% by purchasing another 12 million shares.
The conglomerate bought the shares for $698 million on Tuesday and Wednesday, according to a U.S. Securities and Exchange Commission filing.
Last week the company also acquired 9.9 million shares of Houston-based Occidental. Berkshire owns a total of 175.4 million shares of the oil company.
His holding in Occidental is now worth about $11 billion after crude oil prices rebounded.
Shares of Occidental fell by roughly 15% in June.
The energy sector has taken a beating recently as oil prices fell below $100 a barrel and oil producer stocks sunk during the past week. The commodity market has priced in recession fears and a slowdown in economic growth.
Oil prices rebounded on Friday morning, reaching $102.86 a barrel while energy stocks rebounded earlier this week.
Berkshire also owns a stake in oil producer Chevron ((CVX)), which is the fourth largest holding owned by the conglomerate and only exceeded by Apple ((AAPL)), Bank of America ( (BACXL) ) and Coca-Cola ((COKE)).
Focus on Value Companies
Buffett and his lieutenants focus on value companies instead of a certain sector or industry performing well and look for companies that are "undervalued substantially and has a large margin of safety," Robert Johnson, a finance professor at the Heider College of Business at Creighton University, told TheStreet.
During the recent market downturn, Buffett purchased stocks on the dip and built up stakes in several oil companies, including Chevron.
Buffett began acquiring shares of Occidental Petroleum back in 2019 and has been "favorably disposed for quite some time," Johnson said.
He provided $10 billion of financing in the form of preferred stock that Occidental needed to close the deal on acquiring Anadarko Petroleum Corp.
"The preferred stock has an 8% annual dividend and Buffett also acquired warrants that allow him to buy up to 83.86 million shares of common stock at $59.62 per share," he said. "Buffett clearly saw value in Occidental Petroleum long before the recent surge in oil prices."
The Oracle of Omaha has been known for his strategy of buying and holding stocks of companies that demonstrate value instead of betting on an industry.
"I don't think his purchase of OXY common shares has anything at all to do with his belief about oil prices in the near term," Johnson said. "It is all about value and the ability to purchase companies with a sustainable business model at a discount from intrinsic value. Even after the recent run-up in price, OXY is still selling for a trailing 12-month multiple of only 9 times earnings."
Although the number of electric vehicles sold is rising with Buffett making an investment in Chinese EV maker BYD in 2008 and ESG investing has grown in popularity, Buffett also "realizes that despite all of the hype, fossil fuels are not going to be replaced in the near term," Johnson said.
While Berkshire's portfolio now includes two energy companies, this shift in his investing style of not avoiding ownership of commodities, could be a wager that oil prices will remain elevated for the near term.
The continued higher rates of inflation in the U.S. could be one reason why Buffett made the change, Thomas Hayes, chairman of Great Hill Capital in New York, previously told TheStreet.
