Warren Buffett isn't buying many stocks these days. The latest regulatory filing for Berkshire Hathaway (BRK.A -0.28%) (BRK.B -0.68%) showed that the legendary investor didn't initiate any new positions and added to shares of only four existing holdings.
But don't think that Buffett isn't willing to tap Berkshire's enormous cash stockpile. He won't hesitate to invest heavily when the right opportunity comes along. There's a good reason to believe that he has found such an attractive candidate. He could buy more than $14 billion of one stock.
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Striking oil
Some might argue that Buffett really likes oil stocks right now. That's not entirely true. There are plenty of oil stocks that aren't in Berkshire's portfolio and probably won't be in the foreseeable future.
However, it is fair to say that Buffett really likes a couple of oil stocks. For example, he has built a big position in Chevron (CVX 0.44%). It currently ranks as the third-largest position in Berkshire's portfolio and is worth roughly $26.5 billion, including shares owned by Berkshire subsidiary New England Asset Management.
But I doubt that Buffett will significantly increase Berkshire's position in Chevron. It's a different story for his other favorite oil stock, Occidental Petroleum (OXY -0.09%). Berkshire owns more than 208 million shares, which are valued at close to $12.4 billion. Don't be surprised if Buffett adds more than $14 billion to that stake. If he does, Occidental could become one of Berkshire's top three holdings and perhaps even its second-largest position.
Where did this $14 billion figure come from? In August 2022, Berkshire won approval from the Federal Energy Regulatory Commission to acquire up to 50% of Occidental. At that time, Berkshire had a 20.2% stake.
Although Buffett has continued to buy the stock hand over fist, Berkshire's stake in Occidental is still only at 23.1%. To reach 50% at current share prices, Berkshire would need to invest more than $14 billion. If Occidental's share price rises (which seems likely), the investment could be significantly higher.
Why Buffett loves Occidental
Buffett loves Occidental stock for a simple reason: He thinks its valuation is attractive with respect to future earnings potential. The legendary investor has stated in the past that he wouldn't buy any stock that didn't meet this criterion.
Occidental currently trades at around 8.4 times expected earnings. That's lower than the average forward earnings multiple of 9.1 for the energy sector as a whole.
I suspect that Buffett expects oil prices will rise quite a bit. If so, he's not alone in that view. Some industry experts predict that oil prices will soar to $100 per barrel by this summer -- roughly 28% higher than the current Brent crude level.
Of course, the Oracle of Omaha looks at the long term instead of only a few months out. He no doubt anticipates that the demand for oil and gas produced by Occidental will continue to rise for years to come, even with the transition to renewable energy.
He probably also likes that Occidental is positioning itself to benefit from efforts to reduce carbon emissions. The company thinks that carbon capture and sequestration could be a market worth between $3 trillion and $5 trillion in the future and is investing heavily in this opportunity.
Buy, buy?
Don't look for Buffett to spend $14 billion or more in a short period of time to boost Berkshire's stake in Occidental to 50%. While it's possible he could do so, he would likely prefer to buy incrementally over time to avoid pushing the share price up too much too fast.
There's also no guarantee that Berkshire will ultimately buy 50% of Occidental. Although it secured regulatory approval to do so, it doesn't have to acquire such a large position.
Because of this, it's not a great idea for other investors to buy shares of Occidental solely on the grounds that Buffett's purchases will provide a catalyst. But buying Occidental because of its attractive valuation and long-term prospects could be a smart move. Buffett certainly seems to think so.
