## Warren Buffett’s Love for Occidental Petroleum: Why OXY Outshines Chevron in His Portfolio
Despite Occidental Petroleum (OXY) stock experiencing a 13.4% decline in 2024 and over 20% in the past year, Warren Buffett’s Berkshire Hathaway continues to show unwavering confidence in the company. Berkshire Hathaway’s portfolio has consistently added to its OXY holdings, currently owning approximately 29% of the company and with regulatory approval to increase its stake to 50%. This dedication to OXY stands in stark contrast to Berkshire Hathaway’s recent actions with Chevron (CVX). While Chevron has been a long-standing holding in the portfolio, Berkshire has sold CVX stock on seven occasions since the fourth quarter of 2022, shedding a total of 73.08 million shares.
This divergence in investment strategy begs the question: why does Buffett favor OXY over CVX? The answer lies in a combination of factors, including the long-term potential of the oil industry, Occidental’s unique strengths, and Buffett’s specific investment philosophy.
The Appeal of Oil Stocks: A Long-Term Play
Buffett’s affinity for energy stocks, including oil, is rooted in his assessment of the long-term trajectory of the industry. While the International Energy Agency (IEA) predicts that fossil fuel demand will peak in 2030, driven by the growth of renewable energy solutions, this doesn’t mean the end of oil. It’s more akin to a gradual transition, much like the shift away from typewriter paper to digital documents. As the world transitions to renewable energy, there will still be a significant demand for oil, particularly in the short to medium term. And even as the demand for oil shifts, oil companies, especially those with a strong track record, are likely to play a vital role in the energy transition by diversifying their portfolios and investing in clean energy technologies. This is where Buffett’s long-term investment perspective shines through. He understands that the transition to renewable energy will be a gradual process, and oil companies with a solid financial footing and a commitment to innovation will be well-positioned for long-term success.
Occidental Petroleum’s Allure: Why Buffett Sees OXY as a Winner
Beyond the general attractiveness of the oil industry, there are specific reasons why Buffett is particularly drawn to Occidental Petroleum. Here are the key factors driving his investment decisions:
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Strong Leadership:
Buffett has publicly expressed his admiration for Occidental’s CEO, Vicki Hollum, praising her leadership and vision. Under Hollum’s guidance, the company has made significant progress in reducing its debt levels, a key aspect of its financial stability. This debt reduction, combined with the anticipated rise in oil prices, positions Occidental for sustainable growth.*
Upstream Focus:
Occidental derives a large portion of its revenue from its upstream drilling business, meaning it benefits directly from rising oil prices. This makes Occidental more sensitive to oil price fluctuations compared to companies like Chevron, which have a more diversified portfolio.*
A Strategic Investment:
Buffett’s commitment to Occidental goes beyond simply buying stock. In 2019, Berkshire Hathaway provided $10 billion to help Occidental win a bidding war against Chevron for Anadarko. This investment secured Berkshire Hathaway a substantial stake in Occidental, including $10 billion worth of preferred stock with an 8% annual yield, and warrants to purchase up to 80 million shares of OXY common stock. This strategic investment demonstrates the depth of Buffett’s belief in Occidental’s potential.The Chevron Perspective: Why Buffett Remains Cautious
Buffett’s preference for OXY doesn’t necessarily mean he dislikes Chevron. In fact, Berkshire Hathaway began investing in CVX around the same time it started investing in OXY. However, recent selling activity suggests that Buffett might believe Chevron’s stock price, while not necessarily overvalued, has become too rich. Additionally, Chevron’s involvement in a protracted legal battle regarding its merger with Hess Corp., which won’t finalize until 2025, might be another contributing factor to his cautious approach. Despite these considerations, Chevron remains a significant holding in the Berkshire Hathaway portfolio, holding the fifth-largest position, just ahead of Occidental.
OXY vs. Chevron: Which is Right for You?
Ultimately, choosing between OXY and CVX depends on your individual investment strategy and risk tolerance. While Buffett favors Occidental, Chevron offers a more attractive dividend yield (4.38%) compared to OXY, and its dividend growth has been consistently strong, exceeding the current inflation rate. If dividend income is a priority, Chevron might be a better fit. However, if you believe in the long-term potential of oil and are confident in Occidental’s leadership and strategy, then OXY might be a more compelling investment.
The key takeaway is that Warren Buffett’s investment decisions are driven by a deep understanding of the industry, a long-term perspective, and a focus on identifying companies with solid fundamentals and strong leadership. Whether you choose OXY or CVX, it’s crucial to conduct thorough research and align your investment choices with your own financial goals and risk tolerance.