Warren Buffett of Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) continues adding to his position in Occidental Petroleum (NYSE:OXY). Berkshire now owns 26.8% of the integrated oil company. OXY stock is up about 2% on the news.
Berkshire already has regulatory approval to buy up to 50% of Occidental, which is the leading oil and gas producer in the Permian Basin. OXY stock opened today around $66.50 per share with a market capitalization of $61 billion. Berkshire Hathaway has a market cap of about $629 billion.
What Berkshire Is Doing
While Berkshire Hathaway is known as an insurance company, it is also a big owner of electric utilities. Berkshire Hathaway Energy CEO Greg Abel is Buffett’s heir apparent at Berkshire.
There are two reasons for Buffett to continue buying Occidental, as I wrote in June. First, Occidental gas can supply Berkshire utilities, including its natural gas pipelines, at the lowest possible cost. This will also help it manage the electric utilities’ transition to renewable power. Berkshire Hathaway Energy has spent more than $30 billion buying the power of solar and wind farms and linking them to its grid.
Occidental debt would also cost less if it were under Berkshire’s control. This would cut Occidental’s debt service and let it increase its dividend.
Occidental is one of the hottest stocks of 2022, up more than 110%. Not everything in the oil patch has risen equally. In addition to its OXY stake, for instance, Berkshire also holds a stake in Chevron (NYSE:CVX) worth more than $30 billion. Those shares are up just 35% this year.
What Happens Next for OXY Stock?
Berkshire is known for underperforming the market in good times, but overperforming in hard times. That’s when it uses the cash from its insurance operations to buy assets at low prices. So far in 2022, Berkshire is down 5% while the average S&P 500 stock is down nearly 15%.
Berkshire’s purchases of Occidental common shares have increased OXY stock’s price, but have also increased its value by making it more creditworthy. There may be more gains to come.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.