Warren Buffett is sitting on the sidelines for the most part. Sure, the legendary investor has added a few stocks here and there in recent quarters. However, he’s been a net seller of stocks for the last couple of years. And Berkshire Hathaway‘s cash stockpile is at stratospheric levels.
Would it be surprising if Buffett didn’t buy any stocks in the fourth quarter of this year? Not really. I don’t think that will prove to be the case, though. Here’s one stock Buffett could be buying hand over fist before the end of 2024.
Buffett once famously said that his “favorite holding period is forever.” However, he doesn’t hang on to most stocks forever. The turnover in Berkshire Hathaway’s portfolio is higher than you might expect.
Still, Buffett has a few “forever stocks.” He revealed several of them in his latest letter to Berkshire Hathaway shareholders. Some were already long-term holdings for the conglomerate, such as Coca-Cola and American Express. But there was a more recent addition, too: Occidental Petroleum(NYSE: OXY).
Buffett wrote to Berkshire shareholders that he particularly liked Occidental’s “vast oil and gas holdings in the United States.” He noted that the country has been dependent on foreign oil and gas in the past. Domestic production has changed that dynamic, with Occidental ranking as a major U.S. oil producer.
The “Oracle of Omaha” also lauded Occidental’s CEO, Vicki Hollub. That’s significant because Buffett’s quote about forever being his favorite holding period only applied to “outstanding businesses with outstanding management.”
Does the fact that Buffett plans to own Occidental Petroleum “indefinitely” mean he’s probably buying the stock in Q4? No. He views Coca-Cola and American Express as “forever stocks,” but hasn’t added to Berkshire’s position in either company in more than two decades.
However, if there’s any stock Buffett is aggressively buying before the end of 2024, my money would be on OXY. Why? My reasoning stems in part from Buffett’s previous buying patterns. He initiated a stake in Occidental in March 2022 and has bought more shares in nearly every quarter since then.
It’s important to remember that Berkshire Hathaway secured regulatory approval in 2022 to acquire up to 50% of Occidental. Berkshire currently owns 27.2% of the oil company. I suspect that percentage will rise steadily over time.
But why would Buffett specifically buy OXY hand over fist before the end of this year? Two possible reasons stand out, in my view.
First, Buffett has been a net seller of stocks, primarily because he can’t find many with attractive valuations. Occidental, though, is cheaper now than it was earlier this year when Berkshire added millions of shares. Also, the conglomerate owns warrants that allow it to buy Occidental shares at an undisclosed fixed price. This removes much of the valuation risk Buffett could face buying other stocks.
Second, the business environment for Occidental and other oil producers could be more favorable with the incoming Trump administration. The president-elect has promised to remove burdensome regulations and allow U.S. oil companies to “drill, baby, drill.” Trump also wants to lower corporate tax rates. Buffett doesn’t often make public comments about politics, but he undoubtedly pays attention to the potential political implications for businesses in which he’s invested.
I’m not completely confident Buffett is buying Occidental stock hand over fist before 2024 winds down. He could be concerned that federal policies could drive oil prices (and therefore OXY’s share price) down over the next few years.
However, there aren’t many other stocks on the market that Buffett is likely to find more attractive than Occidental. If he’s using some of Berkshire’s cash to buy stocks now, the odds that Occidental is one of them seem pretty good.
As the old saying goes, though, “Only time will tell.” In this case, the time will be mid-February. That’s when Berkshire Hathaway’s regulatory filing will reveal which stocks it bought in Q4.
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American Express is an advertising partner of Motley Fool Money. Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
