Warren Buffett is one of the most famous investors alive — and his reputation is well-earned. The ‘Oracle of Omaha’ has managed to outperform the wider market consistently using a level-headed, long-term approach based on value investing.
Unsurprisingly, investors across the board — from lowly retail investors to high-flying hedge fund managers keep a close eye on his investments, hoping to emulate at least some of his successes.
However, not all of Buffett’s investments end up being successful — the Dexter Shoe Company acquisition is one example, and so is his late entry into the tech sector which was, to be fair, ameliorated by his eventual investments in Apple (NASDAQ: AAPL).
Picks for you
Taking a closer look at Buffett’s failures is always an interesting process. For one, the post-mortem of the situation tends to reveal either industry-wide trends or other pitfalls that one can learn from. Secondly, and more importantly, not all of those ‘failures’ end up actually failing.
To put it in simple terms — the low valuations Buffett looks for can persist for ages. His preferred holding period is, after all, forever. A lot of the trades he’s made that appeared to be duds at first glance paid off in the end. Now, one of his long-time investments — Occidental Petroleum (NYSE: OXY) is trading at a 2.5-year low. Let’s take a closer look at the case.
Occidental Petroleum stock hasn’t paid off yet — but Buffett keeps investing
As an energy producer, OXY stock is sensitive to underlying changes in commodity prices — oil and gas, to be more specific. Those prices have been steadily declining from the highs seen in 2022. It comes as little surprise that Occidental Petroleum stock hasn’t had a field day with those conditions at play.
At press time, Occidental Petroleum shares were trading at $46.41. Year-to-date (YTD) losses currently stand at 22.71%, and the OXY share price has receded to levels not seen since March of 2022.
Buffett first bought OXY shares back in 2019 — since then, he has steadily been increasing his stake in the company. In fact, in Q2 2024, he bought 7,263,396 units of OXY stock — he hasn’t sold any in the meantime, and his current holding amounts to 255,281,524 Occidental Petroleum shares.
That’s equal to roughly 27% of the entire company. It’s telling that Buffett hasn’t cut his stake as energy prices began to drop. He has long since been on record as bullish on oil and gas — and his significant stake in the business suggests he sees it as one of Berkshire Hathaway’s (NYSE: BRK.A) core holdings.
The billionaire’s original $10 billion investment made in 2019, which was done to complete Occidental’s acquisition of Anadarko Petroleum, came in the form of preferred stock with an 8% annual yield. This serves to reduce overall risk — as Buffett can count on a steady stream of income, regardless of how well or poorly OXY stock performs.
Should you mirror Buffett’s investment in OXY stock?
For investors who share the Oracle’s long time horizon, Occidental Petroleum shares could potentially be a lucrative investment. On November 12, the business released its Q3 2024 earnings call — marking the third consecutive quarter in which it beat analyst expectations regarding earnings per share (EPS).
Revenues, on the other hand, have lagged the Street’s forecasts — and margins have slipped slightly. However, the company has consistently reduced its debt and currently maintains a debt-to-equity ratio of approximately 1.47 — down from 2.34 five years ago.
It comes as little shock that a Buffett pick has an attractive valuation — at a trailing price-to-earnings (P/E) ratio of 13.05 and a forward PE ratio of 15.07, OXY stock is quite affordable.
To boot, like most of the billionaire’s investments, the business maintains an economic moat. Cost advantages due to the scale of its engagement in the Permian basin and vertical integration through upstream, midstream, and downstream operations provide strong tailwinds.
Lastly, we should note that energy stocks are inherently volatile — particularly in view of present geopolitical instabilities. Buffett’s ability to weather risk over a long timeframe is a luxury not many can afford — but for investors who can stomach a long holding period and short-term turbulence, Occidental Petroleum is worth a closer look.
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