Warren Buffett is shielding Occidental Petroleum Corp. from the worst of the drubbing hitting oil and gas producers and making the stock trade like fossil fuel firms more than five times it size.
(Bloomberg) — Warren Buffett is shielding Occidental Petroleum Corp. from the worst of the drubbing hitting oil and gas producers and making the stock trade like fossil fuel firms more than five times it size.
For much of the past year, the billionaire investor’s Berkshire Hathaway Inc. has been snapping up Occidental stock whenever it falls under $60, a level shares closed below on Friday as crude prices slid. Buffett’s firm is the largest stockholder with nearly 222 million shares, almost a 25% stake, according to data compiled by Bloomberg — and regulatory permission to buy more.
“There’s a psychological Buffett effect,” according to Stacey Morris, head of energy research at VettaFi. Investors rationalize, “Warren Buffett likes this stock, so I should too,” she said in an interview.
With crude prices stuck below $100 a barrel since August, energy has been the worst-performing sector in the S&P 500 Index so far this year, falling nearly 8% against the benchmark’s 12% gain. With some peers notching double-digit losses the stock has fallen less than 6% as Berkshire’s consistent buying shelters Occidental from the worst of the damage.
The storied-investor’s stake in the Houston-based firm has grown so large that he had to quash speculation he would seek full control last month.
It may have another benefit: tamped down stock swings. The stock’s 90-day volatility trails similarly sized peers, trading closer to that of Exxon Mobil Corp. or Chevron Corp. — which are eight- and five-times Occidental’s market value, respectively.
There are few other examples in the energy sector of major investors supporting a stock as commodities plunge, according to Morris, though Energy Transfer LP is one. That stock has struggled to hold above billionaire founder Kelcy Warren’s $13.01 strike price, while Occidental has spent very little time below Buffett’s $60 trigger.
Investors are also cheered to see Occidental has been redeeming Buffett’s preferred shares, which were issued when Berkshire Hathaway helped the oil producer finance its blockbuster $38 billion acquisition of Anadarko Petroleum in 2019.
“He continues to add at lower oil prices,” said Cole Smead, chief executive officer of Smead Capital Management. Smead — whose firm holds more than 7 million Occidental shares according to Bloomberg compiled data — expects shares to trade at $100, though he didn’t give a time frame.
Wall Street is less bullish. Bloomberg compiled estimates put Occidental’s average price target at $68, implying a roughly 15% return compared to 22% for the S&P 500 Energy Index. And 17 analysts rate the company the equivalent of a hold, outnumbering the 11 analysts who rate it a buy.
Still, Occidental was the most-purchased stock by hedge funds in the first quarter of the year. And there could be more buying from the Oracle of Omaha after regulators gave Berkshire the go-ahead to notch its stake up to as high as 50% last year.
Roth MKM analyst Leo Mariani expects Buffett to keep buying when the stock slips below $60. “A lot of people own it for that reason,” he said.
–With assistance from Matt Turner.
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