Warren Buffett has bought shares of this stock for 24 consecutive quarters — and it’s not Occidental Petroleum

When it comes to big investments on Wall Street, Berkshire Hathaway (BRK.A 0.94%) (BRK.B 0.97%) CEO Warren Buffett is in a class of his own. Since rising to the CEO position in the mid-1960s, he has overseen an aggregate return on his company’s Class A shares ( BRK.A ) of nearly 5,500,000 percent since the Aug. 23 closing bell.

When you leave from Dow Jones Industrial Average, S&P 500and Nasdaq Composite so decisively in the dust the way Warren Buffett has for nearly 60 years, you’ll attract quite a crowd. Riding Buffett’s tail has been an undeniably effective money-making strategy for decades.

Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.

In theory, mirroring the trades made by the Oracle of Omaha and his best trusted assistants, Todd Combs and Ted Weschler, is easy. The quarterly filed Form 13F provides a concise picture of what Wall Street’s brightest money managers bought and sold.

However, Berkshire Hathaway 13F is missing a big part of the story. Namely, a company whose shares have been bought by Buffett for an incredible 24 consecutive quarters.

Despite being a selective buyer, Buffett is betting big on oil stocks

Although Warren Buffett has repeatedly opined that investors would be wise not to bet against America, what he suggests in the long term and what he and his investment team do in the shorter term do not always match.

In each of the past seven quarters (ended June 30), Berkshire’s dynamic investment trio has been a net seller of a cumulative $131.6 billion worth of stock. No company contributed more to this net selling activity than Berkshire’s main holding company, Apple. Buffett and his team have sold more than 500 million shares of the tech giant since October 1, 2023.

Despite being a very selective buyer lately, the only stock Berkshire’s 13F shows to buy regularly for more than two years is an integrated oil and gas company Occidental Petroleum (OXY 2.03%).

Just over 10% of Berkshire Hathaway’s 45-stock, $315 billion investment portfolio is tied to oil stocks — specifically, Occidental and Chevron. Energy stocks have rarely played a large role in Berkshire’s portfolio over the past quarter-century, so this is a departure from Buffett’s traditional investment strategy.

As of early 2022, Buffett has overseen the acquisition of more than 255 million Occidental Petroleum shares. The thesis behind this constant buying activity may have to do with tight global crude supplies.

For about three years, during the COVID-19 pandemic, a historic slump in demand for energy commodities has encouraged oil and gas producers to cut capital expenditures (capex). Even as investment levels have returned to normal, many years of spending cuts have tightened global supply and provided a consistent boost to the spot oil price.

Although a higher spot price for crude oil lifts all drillers, Occidental generates a higher percentage of its revenue from drilling than most integrated operators. In other words, it is more sensitive to changes in the spot price of crude oil. If supply constraints persist in the coming years, it should uniquely benefit Occidental’s cash flow generation and bottom line.

Image source: Getty Images.

Meet the stocks that Warren Buffett has purchased for 24 consecutive quarters

While Buffett has bought shares of Occidental Petroleum with some regularity since early 2022, that doesn’t come close to matching the shares he’s bought every quarter for six straight years.

As I said before, you won’t find any reference to these purchases in Berkshire Hathaway’s quarterly 13F. Rather, you’ll have to look at the final page of Berkshire’s quarterly operating results, just before the executive certifications. Here you will find evidence of the company’s stock buyback activity and realize that the stock the Oracle of Omaha can’t stop buying quarterly is his own company stock!

Buying back shares of Berkshire Hathaway stock hasn’t always been easy. Prior to mid-July 2018, buybacks were limited to cases where Berkshire shares were trading at or below 120% of book value. At no time for many the years leading up to July 2018, the company’s shares fell below that threshold, which meant no buybacks were made.

On July 17, 2018, the company’s board rewrote the agreements governing buybacks to allow Warren Buffett and his then-hand, Charlie Munger, who died in November 2023, to step off the sidelines and make buybacks if they deemed should do. so.

Under the new criteria, redemptions can be made without an end date or cap, as long as:

1. Berkshire Hathaway has at least $30 billion in cash, cash equivalents and U.S. Treasuries on its balance sheet; and
2. Warren Buffett (and previously Charlie Munger) believes that stocks are intrinsically cheap.

Buffett’s company ended June with a record $277 billion in cash, cash equivalents and U.S. Treasuries, giving the Oracle of Omaha more than enough confidence to continue buying back Berkshire shares. The roughly $345 million in share buybacks executed during the second quarter brought Buffett’s cumulative repurchases of his own company’s stock to nearly $78 billion over the past 24 quarters.

Why is there so much emphasis on stock buybacks by Warren Buffett and his team? First, it gradually increases the ownership stakes of existing shareholders over time. This fosters the long-term ethos that Munger and Buffett have espoused for decades.

Additionally, steadily reducing the company’s outstanding shares through buybacks should provide good earnings per share growth (disregarding variations in unrealized investment gains/losses). Companies that generate consistent net income, such as Berkshire Hathaway, may be viewed as more attractive by investors due to its buyback program.

Even though Berkshire Hathaway’s stock is expensive by historical standards — 162% of book value as of Aug. 23 — a cash pile of nearly $277 billion gives Warren Buffett more than enough reason to keep buying back shares of his favorite stocks.