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When it comes to the investing moguls on Wall Street, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett is in a class of his own. Since becoming CEO in the mid-1960s, he has seen a total return on his company’s Class A shares (BRK.A) of nearly 5,500,000% as of the closing bell on August 23.
When you use the Dow Jones Industrial Average, S&P500And Nasdaq Composite as decisively in the dust as Warren Buffett has been doing for almost 60 years, you will attract quite a crowd. Riding Buffett’s coattails has been an undeniably effective money-making strategy for decades.
In theory, it’s easy to mirror the trades of the Oracle of Omaha and his loyal top assistants, Todd Combs and Ted Weschler. Submitted quarterly Form 13Fs provide a quick snapshot of what Wall Street’s smartest money managers have been buying and selling.
However, Berkshire Hathaway’s 13F is missing a big part of the story. Namely a company whose shares have been bought by Buffett for no fewer than 24 quarters in a row.
Despite being a selective buyer, Buffett is betting big on oil stocks
While Warren Buffett has repeatedly argued that investors would be wise not to bet against America, what he suggests in the long term and what he and his investment team do in the shorter term don’t always align.
In each of the past seven quarters (ending June 30), Berkshire’s dynamic investment trio has been net sellers of shares worth a cumulative $131.6 billion. No company contributed more to this net sales activity than Berkshire’s top holding company, Apple. Buffett and his team have sold more than 500 million shares of the tech giant since October 1, 2023.
Even though it is a terribly selective buyer of late, the only stock Berkshire’s 13Fs has been buying regularly for more than two years is an integrated oil and gas company Western petroleum (NYSE:OXY).
Just over 10% of Berkshire Hathaway’s 45-stock, $315 billion investment portfolio is tied up in oil stocks – specifically Western and Chevron. Energy stocks have rarely played a major role in Berkshire’s portfolio over the past quarter century, so this is quite a departure from Buffett’s traditional investment strategy.
Since early 2022, Buffett has overseen the purchase of more than 255 million shares of Occidental Petroleum. The rationale behind this steady purchasing activity could be related to the limited global supply of crude oil.
For about three years during the COVID-19 pandemic, a historic demand cliff for energy commodities encouraged oil and gas producers to reduce capital expenditures (capex). Even as capital investment has returned to normal, several years of reduced spending have tightened global supply and sent spot oil prices soaring.
While a higher spot price for crude oil incentivizes all drillers, Occidental generates a higher percentage of its revenue from drilling than most integrated operators. In other words, it is more sensitive to changes in the spot price of crude oil. If supply constraints persist in the coming years, it should uniquely benefit Occidental’s cash flow generation and bottom line.
Meet the stocks Warren Buffett has bought 24 quarters in a row
While Buffett has bought shares of Occidental Petroleum with some regularity since the start of 2022, this doesn’t come close to the shares he has bought every quarter for six consecutive years.
As I mentioned earlier, you won’t find any reference to these purchases in Berkshire Hathaway 13F’s quarterly results. Instead, you should look at the last page of Berkshire’s operating results, just before the certification of its executive managers. Here you’ll find evidence of the company’s stock buyback activities and come to realize that the stocks the Oracle of Omaha can’t stop buying on a quarterly basis are shares of his own company!
Buying back Berkshire Hathaway stock hasn’t always been easy. Before mid-July 2018, buybacks were limited to cases where Berkshire’s stock was trading at or below 120% of book value. At no point before a lot of In the years leading up to July 2018, the company’s shares had fallen below this threshold, meaning no buybacks occurred.
On July 17, 2018, the company’s board reworked the covenants governing the buybacks so that Warren Buffett and his then-right-hand man Charlie Munger, who died in November 2023, could step off the sidelines and undertake buybacks as they saw fit. So.
Under the new criteria, redemptions can take place without an end date or ceiling, as long as:
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Berkshire Hathaway has at least $30 billion in cash, cash equivalents and U.S. Treasuries on its balance sheet; And
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Warren Buffett (and formerly Charlie Munger) believes that stocks are inherently cheap.
Buffett’s company ended June with a record $277 billion in cash, cash equivalents and U.S. Treasuries, giving the Oracle of Omaha more than enough confidence to continue buying back shares in Berkshire. The roughly $345 million in stock buybacks conducted during the second quarter increased Buffett’s cumulative share buybacks of his own company to nearly $78 billion over the past 24 quarters.
Why the heavy emphasis on stock buybacks by Warren Buffett and his team? First, it incrementally increases the ownership stake of existing shareholders over time. This drives the long-term ethos that Munger and Buffett have championed for decades.
Furthermore, steadily reducing the number of shares outstanding in the company through buybacks should yield a nice increase in earnings per share (ignoring differences in unrealized investment gains/losses). Companies that generate stable net income, such as Berkshire Hathaway, may be viewed as fundamentally more attractive by investors because of the buyback program.
Even though Berkshire Hathaway’s shares are pricey by historical standards — 162% of book value, as of August 23 — a cash pile of nearly $277 billion gives Warren Buffett more than enough reason to continue buying back shares of his favorite stocks.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Apple, Berkshire Hathaway, and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has one disclosure policy.
Warren Buffett has bought shares of this stock for 24 quarters in a row – and it’s not Occidental Petroleum was originally published by The Motley Fool