$12.9 Billion of Warren Buffett's Portfolio Is Invested in 1 Stock That Could Soar 25%, According to Wall Street

Keith Speights, The Motley Fool

Sun, Nov 17, 2024, 1:52 AM 4 min read

One of Buffett's favorites

Buffett is shifting a lot more money into building Berkshire's cash stockpile than he is buying stocks these days. However, there's one stock he has consistently bought in nearly every quarter since early 2022: Occidental Petroleum (NYSE: OXY).

Occidental now ranks as the sixth-largest holding in Berkshire Hathaway's portfolio. Berkshire's stake in the U.S. oil and gas producer is worth roughly $12.9 billion at recent prices.

Buffett highlighted eight stocks in his latest letter to Berkshire Hathaway shareholders that he expects the conglomerate to own "indefinitely." Occidental was in the group. And it was the only one he has continued to buy regularly.

Why does the legendary investor like Occidental so much? The company's large oil and gas holdings in the U.S. stand at the top of the list. Buffett also likes Oxy's carbon capture and storage initiatives. In addition, he admires and respects Occidental CEO Vicki Hollub. Buffett wrote in his annual shareholder letter that Hollub knows "how to separate oil from rock, and that's an uncommon talent, valuable to her shareholders and to her country."

Why Wall Street likes Occidental Petroleum, too

Wall Street appears to be more bullish about Occidental Petroleum than any other stock in Berkshire's portfolio. The average 12-month price target for the oil stock reflects an upside potential of around 25%. Even the lowest price target among the analysts surveyed by LSEG is 6.5% above Occidental's current share price.

We only have to look to Occidental's third-quarter results announced on Tuesday to understand some of the reasons behind analysts' upbeat take on the stock. Oxy generated strong operating cash flow in Q3 of $3.8 billion. Adjusted earnings per share came in well above the consensus estimate. The company's production also topped the midpoint of its guidance range.

Valuation is likely a key consideration for Wall Street as well. Occidental's share price is 29% below its peak from earlier this year. The stock trades at a forward price-to-earnings ratio of 12.5 compared to a forward earnings multiple of 14.6 for the S&P 500 energy sector.

Granted, not all analysts are fans of Occidental. For example, Evercore ISI Group gave the stock an "underperform" rating on Sept. 30. Several analysts also recommend holding Occidental instead of buying the stock despite setting optimistic price targets.

Is Oxy stock a good pick to buy now?

I wouldn't bet the farm that Occidental Petroleum's share price will soar 25% over the next 12 months as the Wall Street consensus projects. The company's fortunes depend heavily on oil prices -- and there's no way to know what oil prices will do in the near term.

That said, energy independence will almost certainly become more important over the next few years. Occidental's domestic oil and gas holdings should increase in value. I'm cautiously optimistic about the prospects for the company's carbon capture technology.

I also fully expect Buffett to keep buying Oxy stock. Berkshire currently owns 27.3% of the company. It obtained approval from the Federal Energy Regulatory Commission in 2022 to acquire up to 50% of Occidental. Buffett hinted at additional purchases in his shareholder letter earlier this year, writing that Berkshire owns warrants that give it the option "to materially increase our ownership at a fixed price."

Buffett doesn't care what Wall Street thinks about Occidental. But I suspect analysts' upbeat views of the stock are warranted.

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Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.

$12.9 Billion of Warren Buffett's Portfolio Is Invested in 1 Stock That Could Soar 25%, According to Wall Street was originally published by The Motley Fool

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