For nearly six decades, Berkshire Hathaway (BRK.A -0.16%) (BRK.B -0.03%) CEO Warren Buffett has stood head and shoulders above most money managers. Since taking the reins of Berkshire in 1965, Buffett has overseen the creation of more than $610 billion in value for shareholders, as well as led the company's Class A shares (BRK.A) to an aggregate return in excess of 3,600,000%.
Given the Oracle of Omaha's incredible track record, investors tend to pay close attention to what he and his investing team are buying and selling. This is especially true during periods of heightened volatility, such as what we've witnessed since the beginning of the year.
Whereas the benchmark S&P 500 endured its worst first-half to a year since 1970, including a greater than 16% decline during the second quarter, Warren Buffett was busy being an investor. Although we'll have to wait another month to get the entire picture of what the Oracle of Omaha purchased between the beginning of April and end of June, an assortment of filings by Berkshire Hathaway with the Securities and Exchange Commission (SEC) makes it abundantly clear that Warren Buffett piled into the following three stocks as the Nasdaq Composite plunged.
The first stock the Oracle of Omaha and his investing team haven't been able to get enough of is integrated oil and natural gas company Occidental Petroleum (OXY -0.17%). Based on a variety of SEC filings, Berkshire Hathaway acquired around 27 million additional shares of Occidental during the second quarter. Buffett and his team have stayed vigilant, with more than 12 million shares of Occidental purchased in July as well.
The likeliest reason for Warren Buffett to pile into Occidental Petroleum is if he believes energy commodity prices will remain elevated for the foreseeable future. During the coronavirus pandemic, domestic and global energy investments were pared back by major energy companies due to economic uncertainty. Couple this with Russia's invasion of Ukraine and President Joe Biden's halting of new oil and gas drilling leases on federal land, and you have a recipe for a challenged supply landscape for many years to come.
While it's possible oil and natural gas prices could fall, such as if a recession naturally brings down demand, Occidental's higher-margin upstream drilling assets are perfectly positioned to take advantage of historically high oil and gas prices.
This is a good time to point out that Occidental Petroleum is an integrated operator. While it generates its juiciest profits from drilling oil and natural gas, the company operates midstream transmission/storage assets and downstream chemical plants that can hedge against weakness in crude and natural gas prices. For example, if crude prices weaken, it would lower input costs for the company's chemical operations and, more than likely, boost demand for those products.
While it's not difficult to get excited about Buffett's newfound love for energy stocks, it's important to note that Occidental's balance sheet is a bit rougher around the edges than most oil stocks. Occidental's 2019 acquisition of Anadarko ballooned its debt. Even with historically high commodity prices and nearly $12.8 billion in operating cash flow over the trailing 12-month period, Occidental is going to need to strict fiscal discipline going forward to ensure its financial flexibility continues to improve.
A second stock Warren Buffett piled into during the second quarter as the Nasdaq plunged is gaming company Activision Blizzard (ATVI).
Whereas SEC filings normally serve as confirmation of a purchase or sale, comments made by Warren Buffett during Berkshire Hathaway's annual shareholder meeting in late April imply the company's position in Activision Blizzard was increased. According to the Oracle of Omaha, Berkshire's stake in Activision stood at 9.5% while the meeting was ongoing, which is up from the 8.23% stake Berkshire held at the end of March 2022.
On the surface, Activision isn't the type of company you'd typically see Warren Buffett dabbling in. For starters, Activision has faced multiple lawsuits concerning allegations of discrimination and sexual harassment in the workplace. The Oracle of Omaha understands that it doesn't take much to ruin a company's reputation and will generally avoid situations like this.
Additionally, Activision Blizzard shot itself in the foot by delaying two key games late last year: first-person shooter game Overwatch 2 and action role-playing game Diablo IV. Buffett may not be a gaming buff, but he can put two and two together to understand that these delays will adversely impact Activision's 2022 profit potential.
So, "Why Activision?" The answer lies with arbitrage. In January, Microsoft (MSFT -1.10%) made a $68.7 billion all-cash offer to acquire Activision for $95 a share. Although Microsoft is already a major player in the gaming arena, this move looks to be more about its long-term ambitions of becoming a metaverse on-ramp.
The $64,000 question is: Will U.S. regulators will let the Microsoft-Activision deal close? So far, no big snags have emerged. However, Activision Blizzard is still trading at a 22% discount to its all-cash offer price of $95/share from Microsoft. It would appear that Buffett is making a simple bet on the deal closing before the end of 2022.
The third stock Warren Buffett and his team piled into during the second quarter as the Nasdaq plunged is personal computer (PC) and printing solutions company HP (HPQ 1.83%). Similar to Occidental, SEC filings by Berkshire Hathaway in early April show that Buffett and his team were aggressive buyers.
As a general rule, Warren Buffett isn't a big fan of tech stocks, which makes the HP purchase a bit odd. However, value and income stocks tend to come into focus during bear markets. HP definitely hits both of these key notes for the Oracle of Omaha.
In HP's fiscal second quarter, demand for most types of personal systems rose. In particular, commercial revenue surged 18% among personal systems, with PC demand remaining strong as the global pandemic wears on.
Although selling PCs and desktops isn't the high-growth venture it once was, there's highly transparent operating cash flow and relatively predictable demand built into HP's operating segments. That's what makes HP's current and forward-year price-to-earnings ratios of a little over 7 so appealing to the Oracle of Omaha. In other words, there's a pretty safe floor built into these figures, even if the U.S. economy enters a recession.
Furthermore, with HP in the mature phase of its growth cycle, it's come to rely on capital return strategies to reward its shareholders. It's certainly not hard to put a smile on Warren Buffett's face if one of his holdings is buying back its own stock and paying dividends. In the most-recent quarter, HP returned $1.3 billion to its shareholders via buybacks and dividends.
With inflation soaring, HP's 3.2% yield and historically low price-to-earnings ratio might be a more attractive place for Warren Buffett to park Berkshire Hathaway's cash than under the proverbial mattress.