It can be said that no fund manager is more watched by Wall Street than Warren Buffett, the CEO of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B). In addition to being candid and willing to share the qualities he looks for when deploying company capital, the 'Oracle of Omaha' has achieved a cumulative ROI of over 5,600,000% for the company's Class A shares (BRK.A) since taking over in the mid-1960s.
Although Buffett is an outspoken optimist, he often warns investors not to short the usa, but his short-term actions do not always align with his long-term beliefs.
In seven quarters (which may turn into eight considering Berkshire's large-scale selling of Bank of America stocks at the end of September), Warren Buffett and his top investment assistants Todd Combs and Ted Weschler collectively sold nearly $132 billion more in stocks than they bought. As of June 30, Berkshire's cash reserve (including short-term U.S. Treasury securities) has reached a record $276.9 billion.
Buffett may not speak directly, but his actions seem to send a clear warning to Wall Street that stock prices have reached historically high levels.
However, despite such warnings, a few stocks have caught the attention of the 'Oracle of Omaha'. One of the historically most expensive stock markets has not stopped Buffett from heavily buying the following four unstoppable stocks.
Sirius XM Holdings
First is the satellite broadcasting operator Sirius XM Holdings (NASDAQ: SIRI), which merged with Liberty Media's Sirius XM tracking stock Liberty Sirius XM Group in September and underwent a 1:10 reverse split.
Between October 9 and October 11, a Form 4 filing submitted to the U.S. Securities and Exchange Commission showed that Berkshire had acquired approximately 3.56 million shares of Sirius XM, increasing its existing stake to 0.1087 billion shares, representing about 32.1% of the company's outstanding shares.
Buffett is a loyal fan of sustainable moats, and Sirius XM undoubtedly has this. As the only licensed satellite broadcasting operator, Sirius XM is a legal monopoly. Although it still needs to compete for listeners with terrestrial and online broadcasting, as the only satellite broadcasting operator, it has superior subscription pricing power.
From this perspective, its sales channels are completely different from traditional broadcasting operators. The majority of the latter's revenue comes from advertising, while as of the first half of 2024, 77% of Sirius XM's net income comes from subscriptions. The volatility of subscription revenue is lower than enterprise advertising spending, bringing Sirius XM more predictable cash flow.
The valuation is also reasonable. Less than two weeks ago, some of the smartest people, including Buffett, bought Sirius XM's stock, when its valuation was less than 8 times future earnings and the yield was close to 5%. Buffett is an enthusiastic value investor who appreciates a strong capital return plan.
Petroleum stocks
Undoubtedly, the second unstoppable stock is the integrated oil and gas giant Occidental Petroleum (NYSE: OXY), which has captured Warren Buffett's full attention. Since the beginning of 2022, Berkshire Hathaway's stake in Occidental Petroleum has increased from zero to nearly 0.2553 billion shares.
The 'Oracle of Omaha' will not invest over 13 billion dollars in Occidental Petroleum common stock on a whim. He and his team are likely to believe that the spot price of crude oil will remain high or rise further, which will disproportionately benefit Occidental Petroleum. Although the company does have downstream chemical business, most of its net sales and operating cash flow can be traced back to its drilling department with high profit margins.
For Occidental Petroleum, the good news is that there are clear macro factors to support the continuous rise in crude oil prices. Specifically, during the COVID-19 pandemic, energy giants around the world have been underinvesting in capital for many years, coupled with the Russia-Ukraine conflict, leading to oil supply uncertainty and/or tension, which is favorable for the spot price of crude oil.
After the acquisition of Anadarko in 2019, Occidental Petroleum also greatly improved its debt-heavy balance sheet. As of June 2024, the company's net long-term debt is 18.4 billion dollars, a nearly 50% decrease from its peak net debt.
The final part of the puzzle is that Berkshire Hathaway holds call options for Occidental Petroleum with more than 83.8 million common shares, with an exercise price of $59.624 per share. If Occidental Petroleum's stock price remains significantly higher than this exercise price, it is most beneficial for both Buffett and Berkshire.
Chubb
Warren Buffett's third outstanding stock that he can't stop buying, even as he warns Wall Street of the difficulty in finding value, is the property and casualty (P&C) insurance company Chubb (NYSE: CB), which has also performed well.
Although the trading activities of this 'Oracle of Omaha' are usually very transparent, there have been very few instances where he requested confidentiality for one or more securities when submitting Berkshire Hathaway's quarterly Form 13F. Being able to establish a position in one or more securities without disclosing which stocks he is buying can allow Buffett to achieve a more favorable cost basis. In mid-May, Berkshire's mystery stock was revealed to be Chubb.
As of the close on October 17th, the CEO of Berkshire Hathaway purchased over 27 million shares of Chubb stock, valued at approximately $8.2 billion, between July 1, 2023, and June 30, 2024.
The beauty of the insurance industry is that it is quite boring. While disaster losses are inevitable for property and casualty insurance companies, they are typically able to raise premiums in any economic environment. Nature may be unpredictable, but having the pricing power for premiums allows Chubb to stay ahead.
Chubb also leveraged the significant increase in U.S. Treasury bond yields, a consequence of the Federal Reserve's fastest rate hike in forty years. The insurance company invests its float funds (the premiums collected but not yet paid out as claims) in super-safe short-term Treasury bills. Higher yields increase the interest income for insurance companies.
Berkshire Hathaway
Warren Buffett's fourth unstoppable stock purchase can be easily described as his favorite stock to buy, which is his own company's stocks.
Before July 2018, the Omaha Prophet and his trusted assistant Charlie Munger (who passed away in November last year) were forced to stand by. Only when Berkshire Hathaway's stock price falls to or below 120% of book value (i.e., not more than 20% above the listed book value) are stock buybacks allowed. However, Berkshire's stock price has never fallen to this threshold, which means that Buffett and Munger cannot spend a penny on buybacks.
On July 17, 2018, the Berkshire board of directors modified the buyback rules, providing Buffett with another tool to enhance shareholder value. As long as Berkshire's balance sheet has at least $30 billion in cash, cash equivalents, and U.S. Treasury bonds, and Buffett believes that his company's stocks are essentially cheap, buybacks can continue with no upper limit or end date.
Warren Buffett has been buying Class A (BRK.A) and/or Class B (BRK.B) stocks for 24 consecutive quarters, totaling nearly $78 billion. In other words, Buffett's spending on buying his own company's stocks is more than twice the amount spent on buying Apple stocks.
In addition to gradually increasing Berkshire shareholders' ownership and promoting long-term investments, continued buybacks should reduce the company's outstanding shares and increase earnings per share (EPS). In short, this will make Berkshire Hathaway stocks more attractive to fundamental investors.
