Buffett’s Latest Play: Analyzing Berkshire’s Major Stakes in Occidental Petroleum and SiriusXM

The Occidental Petroleum Play: Buying the Dip

A Calculated Move

Berkshire Hathaway’s recent acquisition of approximately 8.9 million shares of Occidental Petroleum, priced between $45.55 and $46.92 each, underscores Buffett’s strategy of buying undervalued assets during market downturns. This purchase, made between December 16 and December 18, 2024, brings Berkshire’s total holdings in Occidental to 264.2 million common shares and 84,897 shares of preferred stock. Despite Occidental’s stock having declined about 20% this year, Buffett’s confidence in the company’s long-term potential remains unshaken.

Why Occidental?

Occidental Petroleum has been focusing on improving operational efficiency, which is evident from its increased operating margins and significant debt reduction. The company reported strong third-quarter results, achieving record U.S. production and generating $1.5 billion in free cash flow. These factors, combined with a P/E ratio of 11, suggest that Occidental may be undervalued, making it an attractive investment for Buffett.

Market Reaction

Following the announcement of Berkshire’s investment, Occidental’s stock saw a 4.5% increase, reflecting investor confidence in Buffett’s decision. This move aligns with Berkshire’s historical approach of investing in undervalued companies during market downturns, reinforcing the belief in Occidental’s growth potential.

SiriusXM: A Strategic Stake

Expanding the Portfolio

In a parallel move, Berkshire Hathaway also increased its stake in SiriusXM by purchasing approximately 5 million shares, priced between $20.85 and $22.49 each. This acquisition raises Berkshire’s total holdings to 117.5 million shares, representing a 35% stake in the company. Despite SiriusXM’s recent challenges, including a forecast for slightly lower revenue and EBITDA in 2025, Buffett’s investment indicates confidence in the company’s core audience and future cash flow growth.

The Rationale Behind the Investment

SiriusXM has been undergoing strategic changes to address investor concerns and improve performance. The company projects an increase in free cash flow from $1 billion in 2024 to $1.15 billion in 2025, trading at about 7 times next year’s cash flow. This potential for growth, coupled with cost-cutting measures, makes SiriusXM an appealing investment for Berkshire.

Impact on Stock Price

The news of Berkshire’s increased stake led to a significant rally in SiriusXM’s stock, with a 12.3% increase on the day of the announcement. This surge reflects the market’s positive response to Buffett’s endorsement and the potential for future growth in SiriusXM’s business model.

Berkshire’s Broader Portfolio: A Snapshot

Top Holdings

Berkshire Hathaway’s investment strategy is characterized by a focus on long-term value and resilience. As of December 2024, the conglomerate’s top holdings include:

1. Apple (AAPL): Despite recent sales, Apple remains a significant part of Berkshire’s portfolio, valued at $74.4 billion.
2. American Express (AXP): A long-term holding since 1991, valued at $45.5 billion.
3. Bank of America (BAC): Despite reductions, it remains a key holding, valued at $35.3 billion.
4. Coca-Cola (KO): Known for its strong brand and consistent cash flow, valued at $25.5 billion.
5. Chevron (CVX): Reflecting expectations of elevated oil prices, valued at $18.4 billion.

Strategic Adjustments

Buffett’s recent moves, including the sale of Apple shares and the acquisition of Occidental and SiriusXM, illustrate a balanced approach to managing risk and capitalizing on market opportunities. This strategy emphasizes a mix of growth potential and stability, aligning with Buffett’s long-term investment philosophy.

Conclusion: Lessons for Investors

Warren Buffett’s recent investments in Occidental Petroleum and SiriusXM highlight the importance of strategic decision-making in uncertain market conditions. By focusing on undervalued assets with strong growth potential, Buffett continues to demonstrate his prowess as a savvy investor. For individual investors, these moves offer valuable insights into the benefits of a long-term investment approach, the importance of intrinsic value, and the potential rewards of buying during market downturns.

As we look ahead, Buffett’s actions serve as a reminder to remain vigilant, adaptable, and focused on the fundamentals. Whether you’re a seasoned investor or just starting, there’s much to learn from the Oracle of Omaha’s latest market maneuvers.