- Value investor Warren Buffett’s firm, Berkshire Hathaway, increased its stake in the energy company by up to 20% of Occidental Petroleum shares.
- Buffett and his team have been given the green light to buy up to 50% of the company’s shares.
- Thanks to volatility in oil prices, Occidental Petroleum has also been a target for short sellers.
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Why Did Warren Buffett Buy Occidental Petroleum Shares?
If Warren Buffett buys a stock, it must be a good deal, right?
In July, the world’s most famous value investor increased his position in Occidental Petroleum OXY. Through his holding company, Berkshire Hathaway BRK.A BRK.B, Buffett now owns 20% of the oil giant.
And on August 19, the Federal Energy Regulatory Commission granted Berkshire Hathaway permission to purchase up to 50% of the company’s shares.
Naturally, Buffett’s purchase spurred speculation about his decision. Many investors were likely surprised that Buffett would buy a larger stake in a cyclical sector such as oil and gas — especially as the world steers away from the use of fossil fuels.
We can answer that last question easily: Occidental Petroleum is investing in carbon-capture technology, which is expected to be a trillion-dollar market in the future.
In 2020 and 2021, Occidental Petroleum seemed on the verge of bankruptcy. The COVID pandemic initially caused oil prices to shrink, and Occidental had recently acquired rival Anadarko Petroleum in a deal worth roughly $55 billion.
However, in the second half of 2021, thanks to rising energy prices, the company began to generate massive cash flows.
The company managed to write off debts valued at $6.7 billion last year. This allowed Occidental to increase its annual dividend payout by 1,200% in February 2022.
It’s no wonder that Occidental Petroleum’s stock is up more than 120% year to date. During the company’s latest earnings call, CEO Vicki Hollub said that shareholders can expect a gradual increase in the company’s dividend.
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Is Occidental Petroleum a Meme Stock?
According to Roundhill Meme ETF MEME criteria, Occidental Petroleum is a meme stock.
Every 14 days, the ETF updates itself in the following manner:
- Using a “social media activity score” that quantifies popularity and engagement, a huge number of stocks are selected from social media platforms like Twitter and Reddit.
- Fifty stocks, ranked by popularity, are selected from the list.
- Roundhill orders these 50 from highest to lowest short interest percentage.
- The fund invests in the top 25 stocks from this filtered list.
In the mid-August refresh, OXY was the fund’s top holding, with a weighting of 5%. Since then, it has lost the top spot but is still among the ETF’s top 25 holdings.
Any purchase the Oracle of Omaha makes tends to resonate among retail investors on social media. And it’s been no different with Buffett’s Occidental purchase.
But there’s another reason why we can consider Occidental Petroleum a meme stock: About 12.3% of the oil company’s stock float is being shorted.
One of the reasons behind this bearishness is possibly Occidental Petroleum’s share dilution. The company has issued a large amount of convertible securities, negatively impacting its earnings-per-share (EPS) ratio.
Also, the bears may be concerned about oil prices. This year’s sharp rise has caused oil stocks to go parabolic in recent months as meme traders flood in — OXY shares jumped to a four-year high.
But now oil prices are dwindling.
The Bottom Line
Occidental Petroleum has been trading like a meme stock this year.
And Warren Buffett’s eventual purchase of 50% of the company’s common shares could be a short-term catalyst for the stock to take off even further — especially considering that retail investors and meme traders are tracking the stock.
In any case, the consensus on Wall Street is that Occidental Petroleum is a moderate buy. TipRanks indicates that, among the 14 latest ratings provided by analysts over the past three months, there has been only one “sell” recommendation. The rest are split between “buys” and “holds.”
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)