Warren Buffett is shielding Occidental Petroleum Corp. from the worst of the drubbing hitting oil and gas producers and making the stock trade like fossil fuel firms more than five times its size.
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For much of the past year, the billionaire investor’s Berkshire Hathaway Inc. has been snapping up Occidental stock whenever it falls under $60, a level shares closed below on Friday as crude prices slid. Buffett’s firm is the largest stockholder with nearly 222 million shares, almost a 25% stake, according to data compiled by Bloomberg — and regulatory permission to buy more.
“There’s a psychological Buffett effect,” according to Stacey Morris, head of energy research at VettaFi. Investors rationalize, “Warren Buffett likes this stock, so I should too,” she said in an interview.
With crude prices stuck below $100 a barrel since August, energy has been the worst-performing sector in the S&P 500 Index so far this year, falling nearly 8% against the benchmark’s 12% gain. With some peers notching double-digit losses the stock has fallen less than 6% as Berkshire’s consistent buying shelters Occidental from the worst of the damage.
The storied investor’s stake in the Houston-based firm has grown so large that he had to quash speculation he would seek full control last month.
It may have another benefit: tamped down stock swings. The stock’s 90-day volatility trails similarly sized peers, trading closer to that of Exxon Mobil Corp. or Chevron Corp. — which are eight- and five-times Occidental’s market value, respectively.
There are few other examples in the energy sector of major investors supporting a stock as commodities plunge, according to Morris, though Energy Transfer LP is one. That stock has struggled to hold above billionaire founder Kelcy Warren’s $13.01 strike price, while Occidental has spent very little time below Buffett’s $60 trigger.
Read the full article here by Geoffrey Morgan, Advisor Perspectives.
