Warren Buffett and Berkshire Hathaway (NYSE: BRK-A) are at it again, sinking more money into the cash-flow gushing Occidental Petroleum (NYSE: OXY). The latest activity is notable for several reasons, including the long pause since the last, the vigorousness, and the price point. The takeaway is that Occidental’s share prices fell back to Buffet Buy Zone, and he pulled the trigger, causing a rebound in the stock price. The question now is how high the price may go, which is considerably higher. However, the stock is within a trading range that may cap gains until other catalysts emerge.
Buffett’s last purchases were in December 2023. Six months later, he increased Berkshire Hathaway’s stake by nearly 30%. Berkshire is the largest investor and influencer of the company and stock price. Never forget that Berkshire holds significant OXY preferred shares, which are central to its position. OXY’s management has targeted the dividend-paying preferred shares, which are being repurchased. The debt reduction is improving the company’s capital structure and leverage, a sign of the company’s health and why Berkshire is buying.
Investors can assume that the preferred shares will be repurchased entirely over time, freeing up cash flow. In this scenario, the company can repurchase its common stock aggressively, sustain robust annual distribution increases, and drive shareholder value. Until then, the $0.88 yearly payment is safe and compounded by common stock share repurchases. The dividend yield is worth about 1.4%, with shares off of recent support targets, and the share count was reduced by an average of 1.2% in Q1 compared to last year. That figure will grow by year’s end.
Institutions Buy OXY: Analysts and Congressional Activity Is Mixed
Berkshire Hathaway is not the only sell-side institution or individual buying this stock. The institutions have bought OXY on balance for six consecutive quarters to bring their holdings up to 88%, including Berkshire and significant shareholders. Berkshire is buying the most, and fund-related holdings are large, but purchases are spread across institutional types and sizes, showing some conviction in the market.
The analyst activity is similar to that of the institutions in that it is mixed but bullish on balance. The activity in 2024 includes one downgrade and two price target reductions, but a greater number of positive updates offsets these. The two negative revisions consider the stock a Hold with 5% to 10% upside potential, a sentiment that aligns with the broader consensus.
Likewise, congressional activity is also mixed. Insidertrades.com tracks two congressional stock transactions for OXY this quarter: one a buy and the other a sell. Senator Tommy Tuberville (R-AL) sold in late April, while Senator Thomas R. Carper (D-DE) bought in early May. Their transactions appear to be unrelated; both are active investors.
Occidental Production to Boost Revenue in Q2
Among OXY’s Q1 report highlights is record-level production offset by price deleveraging. Today's takeaway is that record-level oil production is expected to continue in Q2, and the average price of WTI is up more than $3 per barrel or nearly 5%, providing leverage for the results. The analysts are raising their estimates and forecasting 14% sequential top-line growth, a return to YoY growth, and a wider margin to improve the bottom line significantly. The earnings are expected to improve by roughly 20%. Further improvement in the capital structure is also expected.
Occidental's price is up off its lows, and the chart shows it will head higher. The market is supported at a critical level that coincides with a cluster of moving averages set up to fire a strong signal. The MACD and stochastic are also set up to fire strong entry signals, provided the market sustains upward movement in the price action. The critical resistance is near $70.
