Few, if any, billionaire money managers are more revered on Wall Street than Berkshire Hathaway‘s (NYSE: BRK.A)(NYSE: BRK.B) Warren Buffett, CEO. Since taking over as CEO in the mid-1960s, the Oracle of Omaha has overseen a cumulative return exceeding 5,771,000%, as of the close on November 22.
One of the reasons investors like Buffett so much is his willingness to be open and honest about stocks and the American economy. He regularly lays out the characteristics he looks for in “wonderful companies” in his annual letter to shareholders, as well as during Berkshire’s annual shareholder meetings.
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Warren Buffett, CEO of Berkshire Hathaway. Image source: The Motley Fool.
But what might be surprising is that Warren Buffett has been a decisive net seller of stocks for eight consecutive quarters, to the tune of $166.2 billion. This selling activity appears to be a clear warning that stocks are historically expensive and value is difficult to come by.
However, this does not mean that all purchasing activity has ceased. Since 2018, Warren Buffett has invested nearly $91 billion of his company’s cash in the following two unstoppable stocks.
As of July 2018, there is no stock on the planet that Warren Buffett has bought more frequently than shares of his own company. It bought back Berkshire Hathaway shares for 24 consecutive quarters, a streak that ended in the quarter ended in September, and these total purchases totaled nearly $78 billion. Put another way, the Berkshire boss spent more on buying shares of his own company than on buying shares of Apple and bank of america at cost, in combination!
Before mid-2018, it was virtually impossible for Warren Buffett to buy back shares of his company. Rules governing buybacks required Berkshire shares to trade at or below 120% of book value for buybacks to take place. This is a threshold that Berkshire Hathaway stock simply never reached, leading to no buyback activity.
But on July 17, 2018, Berkshire’s board changed buyback rules to give its boss and then right-hand man, Charlie Munger, who died in November 2023, more freedom to take action. The new rules allowed unlimited share buybacks with no end date, as long as Berkshire had at least $30 billion in combined cash, cash equivalents and U.S. Treasuries on its balance sheet, and Buffett deemed his shares company are inherently cheap.
Since Berkshire Hathaway does not pay dividends, share buybacks are the easiest way for the Oracle of Omaha to reward investors. Buying back shares over time is progressively increasing investors’ ownership stakes and encouraging the long-term thinking that Buffett and his top advisors value so much.
Additionally, a regular diet of share buybacks for a company with steady or growing net income, such as Berkshire Hathaway (no unrealized investment gains/losses), should provide a boost to earnings per share (EPS). In short, the buybacks are helping to make Berkshire fundamentally more attractive to investors.
However, in recent months Berkshire shares have been trading at their highest multiple to book value since 2008. Given that Warren Buffett is an avid value investor, it is perhaps not a surprise that he decided not to buy back shares of your company in recent months. room.
Image source: Getty Images.
The second unstoppable stock that Warren Buffett has been buying heavily in recent years is the energy goliath Western Oil(NYSE: OXY). At an estimated cost of $50.40 per share, according to aggregator 13F WhaleWisdom.com, the nearly 255.3 million Occidental Buffett shares it has purchased since the beginning of 2022 are equivalent to an investment of $12.9 billion.
The Oracle of Omaha and his team wouldn’t put this amount of money to work in an integrated oil and gas stock without a solid investment thesis. What we are seeing is a very clear bet that the spot price of crude oil will increase over time.
During the COVID-19 pandemic, large energy companies around the world were forced to cut capital expenditures due to a historic drop in demand. About three years of reduced capital expenditures will make it difficult to rapidly increase global crude oil production in the near term. Coupled with the Russian invasion of Ukraine, it has created something of a perfect storm to drive up the spot price of crude oil.
Higher prices for energy products are particularly important for Occidental Petroleum. Although it is an integrated operator that also generates revenue from its downstream chemical plants, Occidental generates a disproportionate amount of its operating cash flow from its upstream drilling segment. Just keep in mind that this pendulum works both ways: that is, your cash flow can be disproportionately harmed if the spot price of crude oil declines.
It’s also worth noting that Buffett’s company has warrants to purchase 83,858,848 shares of Occidental common stock at an exercise price of $59.624 per share. The warrants are what allowed Buffett to generate billions of dollars in profits by purchasing 700 million shares of Bank of America at a strike price of just $7.14 per share in the summer of 2017. It is in Berkshire’s interest that Occidental’s share price remains above $59,624. strike price, which may encourage a lot of buying activity from Buffett.
But at the end of the day, Occidental is anything but a typical Buffett investment. It closed the September quarter with nearly $25.5 billion in net debt, which is quite a bit of leverage for a company tied to the spot price of crude oil. The Oracle of Omaha typically avoids deeply indebted companies, even if they cover a basic need like oil.
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Bank of America is an advertising partner of Motley Fool Money. Sean Williams has positions at Bank of America. The Motley Fool has positions and recommends Apple, Bank of America and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Billionaire Warren Buffett Has Invested $91 Billion (At Cost) In These 2 Unstoppable Stocks was originally published by The Motley Fool
