Among all the stocks Warren Buffett’s Berkshire Hathaway is buying, his latest energy stock buy is the most notable. The billionaire bought 9.9 million shares of Occidental Petroleum Corporation on July 3, 2022. He bought 12 million more OXY shares on July 7, 2022. Berkshire has a stake of around 18.6%.
After Occidental shares dipped in late June, the stock could fall again briefly. Institutional investors are panicking to hedge against hyperinflation. Energy demand is accelerating. The economy is very hot. Companies and consumers will continue to consume more energy. Energy is one of several Warren Buffett stocks to buy on the dip.
In the table above, Chevron and Occidental Petroleum offer investors a hedge against energy inflation. Stock Rover assigned strong score on value and quality for them.
Investors should watch Buffett’s other long-term investments. In the consumer space, Apple, Kroger, Kraft Heinz, and Coca-Cola are durable brands. They are resilient companies that will perform well regardless of the economy.
Investors holding Apple benefit from its classification as a technology firm. Consumers will upgrade their devices while spending more on Apple’s services. On the deep value front, watch HP Inc. after the stock dipped. PC demand slowed in the first quarter. As the upgrade cycle resumes, HP’s business will recover.
|BAC||Bank of America||$33.73|
Bank of America (BAC)
On June 23, 2022, The Federal Reserve released its stress test results. Bank of America (NYSE:BAC) is one of many firms that passed this test. As a result of the test, the aggregate common equity capital ratio will fall by 2.7%. This means that banks will have enough cushion against losses during a severe recession.
At a capital ratio of 7.6, BAC stock ranked lower than the other firms. BAC stock did not respond to the results because markets do not expect the bank will raise its dividend. The stock yields close to 3%.
When Bank of America reports second-quarter results, it should report strong net interest income growth. Interest rates rose during the quarter. It will rise further for the rest of the year. Shareholders may accumulate shares on weakness. When the economy strengthens by early next year, investors get a healthy bank whose revenue will grow.
Coca-Cola (NYSE:KO) is one of Berkshire’s biggest holdings. The food and drink supplier has a strong portfolio of brands. It focused on improving its product quality through innovation. It also invested effectively in marketing. This will lead to a continued performance in Coca-Cola’s markets.
The firm is conscious of ESG – environmental, social, and governance. This complimented supplying its good conveniently to customers. Its customers are busier and stressed. They need Coca-Cola’s energy, coffee, and cola drinks.
The company expanded its reach through a new marketing model. For example, it is not advertising on television channels only. It is reaching customers who consume subscriptions and digital content.
Chief Merchandising Officer Manuel Arroyo said that the company measured the effectiveness of its advertising initiatives. Last year, its metric for marketing profitability grew by 7%. If this metric rises faster than the rate of inflation, Coca-Cola will sustain its operating margins.
On Wall Street, the average price target for KO stock is around $70 (per Tipranks).
On April 6, 2022, Berkshire revealed that it bought around 10% or 109.8 million shares of HP (NYSE:HPQ). Despite the post-pandemic slowing demand for personal computers, Berkshire appreciates the strong earnings and free cash flow.
For fiscal 2022, the company estimates GAAP net earnings of up to $4.06. It estimated free cash flow for the year of at least $4.5 billion. Most importantly, it will return 100% of free cash flow to shareholders. Buffett loves companies that pay dividends and buys back stock. HPQ stock will have limited downside when the company re-invests all cash flow by rewarding shareholders.
HP is in a state of transformation. It will take out at least $1.2 billion from costs. As a learner firm, profit margins will expand. While the PC market weakens, competitors will struggle. Conversely, HPQ stock will pay an annual dividend of $1 a share. This is 29% higher than the previous year.
HP has strong revenue potential as it leverages multiple growth areas. This includes gaming, peripherals, the consumer market, and industrial. The gaming and peripherals market is of strategic importance. Growth is strongest in those markets.
In its last dividend declaration, Kroger (NYSE:KR) raised the payout by 24%. The grocery firm increased its dividend for 16 consecutive years. KR stock will continue to pay higher dividends over time, regardless of the economic conditions.
Kroger is a resilient firm that thrives in a variety of operating environments. It has a strong balance sheet. It may acquire smaller firms or invest in the business to sustain growth.
Markets are nervous about the largest US grocery chain firm. They worry that the supply chain disruption will hurt its margin. Still, the company may keep its operating costs low despite higher inflation. Costs for labor, transportation, and products are rising. Kroger will increase operating efficiency and cut costs to offset those pressures.
Kroger has loyal shoppers. It may rely on households to strengthen sales every quarter. It attracts customers by offering promotions. As customer traffic rises, they will buy in-house brands to save money. When inflation rates eventually slow, customers will shift back to higher-priced products. This will lead to margins expanding in the long term.
Occidental Petroleum (OXY)
Berkshire added to its Occidental Petroleum (NYSE:OXY) position aggressively. At a 17.4% stake, it may position itself to take over Occidental. Still, Buffett may not want to deal with all the regulatory requirements of a takeover. Investors should consider OXY stock as a good investment instead.
The energy firm is taking advantage of high energy prices. It will use its free cash flow to cut its debt. In January, S&P raised Occidental’s debt rating to BB+. Persistently high energy prices will increase Occidental’s profits. It will retire more debt and reach investment-grade status.
OPEC is unlikely to increase the oil supply. It does not have any spare capacity to do so. In addition, energy demand will rise as summer travel increases. As the colder season approaches, energy demand will rise due to heating needs.
Worries of a recession should hurt energy demand. However, expectations of a steep recession are unfounded. Unemployment levels are very low and the economy is very healthy.
Chevron (NYSE:CVX) downsized its California presence as it relocated staff to Texas. The firm likely wants to avoid further California politics. Without that distraction, it will focus on sustaining its strong financial performance in a low-carbon future.
Chevron has a strong balance sheet. It is a Buffett favorite because the company rewards shareholders with a growing dividend and a stock buyback. It is investing back in the business to achieve capital and cost-efficiency.
The oil and gas business is a commodity business. It cycles through good times and bad. Chevron must maximize cash flow amid high energy prices. When prices eventually fall, it may count on its higher output efficiency. In addition, it will have low carbon emissions in its operations. Chevron will meet tough clean energy standards.
Chevron is prepared for a downside $50 oil price scenario. It has a healthy balance sheet that will still increase its dividend and buyback shares. At a macro level, economies are struggling with sustained high energy prices. This may slow energy demand. Chevron will post profits when conditions worsen.
Kraft Heinz (KHC)
Kraft Heinz (NASDAQ:KHC) improved its operating efficiency in the last two years. It is transforming its business to achieve higher margins and high returns on invested capital.
Kraft is achieving top-line growth. It is optimizing its portfolio and divesting underperforming assets. It is finding efficiencies from its past acquisitions. In the U.S. Kraft Heinz needs to maintain its market share performance.
Kraft Heinz is careful with its spending. It transformed its marketing organization to improve its use of resources. For example, the company merged its U.S. and Canada operations. This eliminated redundancies. By stripping unnecessary layers, the company will report better operating margins.
Cost inflation is a serious risk for consumer discretionary firms. Kraft Heinz is building its inventory and improving product availability. Its strong relationship with suppliers will keep its costs low. Input costs are low through at least the fourth quarter. It has supply contracts that will insulate costs from inflation.
On the date of publication, Chris Lau 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.