Warren Buffett, known as the Oracle of Omaha, is among the most followed investors worldwide. His comments on the market can dictate investor sentiment, while his buying and selling activity often has profound impacts on prices.
Recent filings show that, through his holdings company Berkshire Hathaway (NYSE:BRK.A), Buffett has been selling stocks and raising cash. In fact, Buffett raised around $80bn from the sale of around half of Berkshire’s shares in technology giant Apple.
So, what is Buffett doing with all this cash? Well, here are two stocks I think he’s likely been buying.
Something close to home
Buffett has consistently purchased shares in none other than Berkshire Hathaway for 24 consecutive quarters, and I’d suggest it’s highly likely that he’s using some of the company’s $277bn for further share buybacks in the current quarter.
Share buybacks haven’t always been easy to come by for Buffett’s company. The change in Berkshire’s share repurchase policy in July 2018 allowed Buffett and his team more flexibility in deploying capital.
Prior to this change, strict limitations on buybacks based on book value prevented Berkshire from repurchasing its own shares, despite Buffett’s belief that they were undervalued by the market.
Buffett’s approach to share buybacks is strategic and opportunistic. He views these repurchases as a way to return value to shareholders when the stock is trading below its intrinsic value.
While official confirmation will be presented in Berkshire’s third-quarter results, it’s almost certain Buffett continued buying back stock.
A personal favourite
One stock that Buffett continued investing in during Q2 was Occidental Petroleum (NYSE:OXY). In fact, it was the Oracle’s biggest purchase and recent share additions mean that Buffett has increased Berkshire’s stake in Occidental to nearly 30%. Unsurprisingly, Berkshire is the company’s largest shareholder.
Buffett tends to prefer companies that trade with relatively low valuations. However, with Occidental trading at 15.4 times forward earnings — a 28.3% premium to the energy sector — it doesn’t fit in with his normal criteria.
Nonetheless, there could be other reasons for his continued purchasing. For one, Occidental offers great margins — a sign of a quality company — with the EBITDA margin of 45.1% considerably stronger than the industry average.
Moreover, the investment serves as a hedge against oil price fluctuations within Berkshire’s diverse portfolio. Rising oil prices benefit Occidental but may impact other Berkshire holdings like its railroad subsidiary.
Likewise, Occidental is very US-focused, with 82% domestic production. This reduces geopolitical risks associated with international operations and aligns with Buffett’s faith in the US and the US economy.
Concluding thoughts
While Buffett might be putting cash to work elsewhere in Q3, it’s worth noting that the S&P 500 is near an all-time high and Buffett is traditionally cautious in such environments. He once said it’s wise for investors “to be fearful when others are greedy and to be greedy only when others are fearful.”
