When legendary investor Warren Buffett is exceptionally bullish about a market opportunity, Wall Street listens. That’s why the spotlight is currently on hydrocarbon exploration and production specialist Occidental Petroleum (NYSE:OXY). Buffett’s industrial conglomerate Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) has been aggressively scooping up OXY stock ahead of potentially favorable oil market dynamics.
According to CNBC, regulatory filings show that Berkshire “purchased Occidental shares every trading day from June 5 to Monday, totaling an additional 7.3 million shares with purchase prices slightly under or above $60.” Following the acquisitions, the conglomerate’s holdings reached over 255 million shares of OXY stock, implying a 28.8% stake.
As the business news agency noted, “Occidental is Berkshire’s sixth-biggest stock holding, and the conglomerate has become Occidental’s biggest institutional investor by far.” Plus, the investor known as the Oracle of Omaha could end up adding more to the position.
Berkshire has warrants that facilitate the option of buying another 83.9 million common shares for $5 billion, translating to $59.62 per share. Per CNBC, a 2019 deal in which Berkshire helped finance Occidental’s acquisition of Anadarko Petroleum provided the aforementioned warrants.
OXY Stock Buoyed by Strong Management and Shifting Oil Dynamics
Notably, Berkshire also owns $10 billion of preferred shares of OXY stock. Based on CNBC’s analysis, a “full redemption of the preferred equity could lift Berkshire’s ownership of Occidental above 40%.” Still, Buffett clarified that he wouldn’t take control of the upstream energy giant.
Instead, Buffett praised Occidental’s management team, in particular calling attention to CEO Vicki Hollub. In an interview with CNBC, Buffett stated that he “read every word” of one of the oil company’s earnings conference call transcripts. Further, the investor stated that Hollub is “running the company the right way.”
Adding optimism for bullish stakeholders of OXY stock are shifting oil market dynamics that could favor the upstream specialist. Earlier this year, slowing business activity in the U.S. along with cooling tensions in the Middle East led to a decline in the price of oil. More recently, however, investors have grown more optimistic about the hydrocarbon sector’s demand outlook.
In particular, the Organization of the Petroleum Exporting Countries and non-member allies — known as OPEC+ — offered reassurances that market conditions will be the arbiter of upcoming production plans.
Overall, analysts rate OXY stock as a consensus hold, with an average price target of $72. That implies roughly 18% upside from the time of writing.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
