Warren Buffett’s substantial investment in Occidental Petroleum (OXY) is facing a setback as shares of the company have plummeted 29% since mid-April. The decline coincides with a 23% drop in crude oil prices, fueled by concerns about demand and excess supply. This downturn has put a strain on Buffett’s $13 billion investment in Occidental, potentially putting it underwater.
While Buffett might buy more shares, Chris Bloomstran, fund manager at Semper Augustus, believes he’s unlikely to take over the company. Instead, Bloomstran suggests Buffett would prefer Occidental to initiate a stock buyback program, which CEO Vicki Hollub has indicated will only happen after significant debt reduction. “I wouldn’t rule out a purchase of additional shares,” Bloomstran said.
Adding to the challenge, Buffett holds warrants to buy an additional 83.5 million shares at a strike price of $59.62, nearly 20% above the current market price. This means he would need to see the stock price rise significantly to make a profit on those warrants.
Berkshire Hathaway, Buffett’s conglomerate, has been accumulating shares of Occidental since early 2022, with a significant buying spree in June at around $60 per share. The company now owns a 29% stake in the oil producer. The $55-$60 price range had previously served as a support level for Occidental’s stock since Buffett began his purchases, but this floor has now been breached for the first time in over two years. HedgeFollowe estimates that Berkshire Hathaway’s average purchase price for its stake is $51.22 per share, slightly above the current trading price.
This setback for Buffett comes amidst broader strategic shifts and market movements. Bank of America CEO Brian Moynihan recently commented on Buffett’s reduction of his stake in the bank, noting that Buffett has been a stabilizing force but has sold nearly $7 billion in shares since mid-July. Buffett has been selling shares in several companies, including Apple Inc. and Bank of America, as economic uncertainties loom.
Despite these challenges, Buffett’s investment acumen remains highly regarded. On his 94th birthday, Berkshire Hathaway reached a $1 trillion market cap milestone, highlighting his long-term success. However, even Buffett has acknowledged missed opportunities, such as his late investment in Amazon.com Inc. In the mid-1990s, when Amazon was just an online bookstore with big dreams, Buffett had the chance to invest but passed on it. He also passed on buying shares during Amazon’s IPO in 1997. Reflecting on this now, Buffett doesn’t shy away from admitting his mistake. “I was too dumb to realize” the potential of Amazon and its visionary founder, Jeff Bezos, he said, with his usual blend of humility and humor.
Occidental Petroleum’s stock is currently trading at $50.99, up 0.65% on Thursday. However, year to date, the stock has dropped by 15.09%.
