Over the years, Berkshire Hathaway (NYSE: BRK.A) founder Warren Buffett has built a reputation for his stock market prowess, where he focuses on a value-based, long-term investment strategy for select companies.
However, returns from Buffett’s bet on energy stock Occidental Petroleum (NASDAQ: OXY) appear to have encountered turbulence despite remaining steadfast in his purchases over the past 12 months.
Buffett’s buy signals coincided with relative consolidation for OXY, whose equity has since dropped, leaving Oracle of Omaha in the red on all his positions bought in the past year.
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Also, with OXY trading at $49 as of press time, the stock continues to face notable downturns, plunging 16% in 2024. The bearish signs are further highlighted by the share price dipping below its 200-week simple moving average (SMA).
Overall, the stock’s current valuation is well below the price levels of $60-$70 at which Buffett made his purchases, suggesting that the legendary investor is now “underwater” on these buys.
His latest purchase occurred in June when Berkshire Hathaway bought shares totaling 7.3 million for $60 a peice. Buffett now holds over 255 million shares, representing a 28.8% stake in the company.
In December 2023, the legendary investor acquired 5.2 million shares for approximately $312.1 million. Additionally, Berkshire holds warrants to buy 83.9 million more Occidental Petroleum shares at $59.62 and owns 84,897 shares of preferred stock. Should Buffett remain bullish on the stock and redeem these shares, Berkshire’s ownership could exceed 40%.
Why OXY stock is struggling
Occidental Petroleum shares have been under pressure due to several contributing factors. For instance, declining oil and natural gas prices have weighed down the general energy sector, negatively impacting Occidental.
At the same time, the company continues to struggle with debt stemming from its 2019 acquisition of Anadarko Petroleum, a deal financed mainly by borrowing. The situation has been compounded by the purchase of CrownRock for $12 billion. These significant debt levels may suppress investor interest, especially in a weak commodity price environment.
Despite the weakness, Occidental Petroleum reported better-than-expected earnings for the second quarter. The firm’s revenue came in at $6.8 billion, growing 1.7% year over year, while net income surged to $1.16 billion, a 35% YoY increase.
OXY stock technical outlook
As OXY shows weakness, a stock market analyst with the pseudonym MarketMaestro posted on X on September 24, pushing back against the famous phrase, “Warren Buffett knows everything.”
The expert argued that Buffett may not be well-versed in technical analysis, considering Occidental Petroleum hit a critical technical resistance level of around $75 on its monthly chart.
The analysis reflected OXY’s performance over a decade and showed a repeated failure to break through the $75 price level since 2011. Technical indicators, such as a declining relative strength index (RSI) and reduced institutional activity, signal potential weakness in the stock’s momentum.
Meanwhile, as Buffett continues to express optimism about OXY, his recent moves to realign his portfolio have attracted significant market interest. To this end, Buffett has significantly trimmed his stake in key firms, with Bank of America (NYSE: BAC) being the most affected. As reported by Finbold, Buffett began his BAC stock selling spree in mid-July, netting about $9 billion in multiple trading sessions, reducing his stake in the banking giant to around 10.5%.
In conclusion, Buffett has never been one to make impulsive decisions or panic in the face of market volatility. His investment philosophy is rooted in patience. However, his OXY bet might prove more challenging than anticipated, as the energy sector faces headwinds alongside company-specific weak signals.
