What happened
Shares of U.S. energy giant Occidental Petroleum (OXY +4.62%) increased 25.8% in May 2022, according to data from S&P Global Market Intelligence. As of June 3, the stock is now up over 140% so far in 2022 alone. Why the big run-up? It certainly helped that energy prices remained high during the month, as did a solid first-quarter earnings report Occidental released on May 10.
The biggest reason for another leg higher, though, could likely be attributed to news that a famous investor by the name of Warren Buffett increased his stake in the oil company.
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So what
In a series of filings with the Securities and Exchange Commission (SEC) in early May, it was revealed that Buffett's Berkshire Hathaway (BRK.A +0.00%)(BRK.B 0.11%) has once again boosted its stake in Occidental Petroleum stock. Though still a small piece of the whole Berkshire stock portfolio pie, OXY is now a more than $10 billion position for Buffett and company, or over 15% of Occidental's total market cap.
As a reminder, Berkshire first got involved with Occidental back in 2019 when the energy major was bidding against Chevron (CVX +2.95%) for the privilege of acquiring energy exploration company Anadarko. Occidental's winning bid was a very high premium of $55 billion. To pay the bill, funding was secured from Berkshire, yielding Buffett's investment conglomerate preferred stock (which pays a high-yield dividend) and warrants to purchase more common stock at a favorable price.
Fast forward to 2022 -- Berkshire is exercising those rights and being rewarded handsomely.
Now what
To be sure, Occidental can still be viewed as a higher-risk integrated oil play. It carries a large burden of long-term debt totaling $25.7 billion -- even after repaying nearly $3.3 billion worth of that debt in Q1 2022. By comparison, mighty Chevron and its far larger operation had total debt of $29.3 billion.
Nevertheless, Occidental is using the windfall of high energy prices to work its way back into financial shape. Record quarterly free cash flow of nearly $2.4 billion was also reported in Q1, easily covering the company's dividend payment (which currently yields 0.8%). Shares currently trade for just 6.8 times trailing-12-month free cash flow. This energy stock is "cheap" for a reason, but certainly a worthy addition to the Berkshire portfolio if it can continue to make hay from the current inflationary environment.
