A big bet failed! Did "Stock God" Buffett miss again?
Buffett suffered significant losses due to the continuous decline in oil prices, with Western Oil Company's stock price plummeting by 29% since mid-April. Berkshire Hathaway increased its stake in the company since 2022, with the current holding cost higher than the market price. Despite facing losses, Buffett may consider increasing his stake, but it is unlikely that he will acquire the company
This year, the continuous decline in oil prices has led to a major stock bet by "Stock God" Buffett resulting in losses.
Since mid-April, the stock price of Occidental Petroleum has plummeted by 29%, down 15% year-to-date to around $50. This drop in stock price coincides with a 23% drop in crude oil prices since mid-April.
Pressured by concerns over weakening US economy-driven demand and oversupply from record production by US oil companies, oil prices have been under pressure.
The sharp drop in Occidental Petroleum's stock price is a blow to Buffett's Berkshire Hathaway, which has been increasing its stake in the oil producer since the beginning of 2022.
Buffett started buying Occidental Petroleum's stock in June, purchasing millions of shares at around $60 per share. The diversified conglomerate holds a 29% stake in the company, valued at around $13 billion.
Since Buffett started buying Occidental Petroleum's stock in 2022, the $55-60 range has been the bottom of its stock price. On Thursday, the stock price of Occidental Petroleum broke this bottom for the first time in over two years.
According to HedgeFollowe, a hedge fund tracking website, Berkshire Hathaway's average purchase price for its stake is $51.22, about 1% higher than the current stock price.
It is worth noting that Berkshire Hathaway's average cost of holding Occidental Petroleum's stock is known only to Berkshire Hathaway itself.
Another sign of Berkshire Hathaway's loss on its bet on Occidental Petroleum is its holding of warrants, which can be used to purchase more shares.
Chris Bloomstran, fund manager of Semper Augustus and a long-term investor in Berkshire Hathaway, pointed out that Buffett has warrants to purchase an additional 83.5 million shares of Occidental Petroleum at an exercise price of $59.62, nearly 20% higher than the current price.
Bloomstran stated, "It is possible that Buffett will take advantage of the recent drop in Occidental Petroleum's stock price to buy more, but he will not acquire the company."
"I wouldn't rule out the possibility of increasing the stake," Bloomstran said, emphasizing that the company has sufficient "firepower" after recently selling Apple and Bank of America stocks.
"Buffett has said he won't buy the entire company, and I don't think he will change his mind," Bloomstran added.
Bloomstran suggested that Buffett may hope to see Occidental Petroleum initiate a stock buyback program, but Occidental Petroleum CEO Vicki Hollub stated that the company will not do so unless it pays off a significant portion of its outstanding debt.
During Occidental Petroleum's latest earnings conference call, Hollub mentioned that the company aims to reduce its debt to $15 billion before considering a stock buyback program, which may be achieved by the end of 2026 or early 2027.