Few investors are more widely followed on Wall Street than Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) CEO Warren Buffett. The reason for that is simple: he's vastly outperformed the broader market for nearly six decades.
Since the Oracle of Omaha (as he's come to be known) took over as CEO in 1965, he's doubled up the annualized total return of the benchmark S&P 500 and generated a nearly 4,300,000% aggregate return in his company's Class A shares (BRK.A), as of the closing bell on August 22, 2023. This outperformance leaves investors eager for Berkshire Hathaway's quarterly 13F filings, which allow investors to mirror Buffett's buying and selling activity.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Based on recent 13Fs and Berkshire Hathaway's quarterly operating results, it's crystal clear that there is two stocks Warren Buffett can't stop buying, as well as one holding he looks pretty eager to sell.
Stock No. 1 Warren Buffett can't stop buying: Occidental Petroleum
Berkshire Hathaway's latest 13F, which features buying and selling activity from the beginning of April through the end of June, lists five purchases. One of these buys has practically become a fixture on Berkshire's 13Fs since the start of 2022.
During the second quarter, Buffett's company purchased 12,422,073 shares of oil and gas stock Occidental Petroleum (OXY -0.15%). However, the Oracle of Omaha and his investing lieutenants, Ted Weschler and Todd Combs, have bought an aggregate of 224,129,192 shares of Occidental common stock since the start of 2022. It's consistently been a stock that Warren Buffett and his team can't stop buying.
The most-logical reason to have more than $14 billion invested in an oil and gas stock is the expectation of higher spot prices for energy commodities -- specifically West Texas Intermediate (WTI) crude oil. Russia's invasion of Ukraine, coupled with years of underinvestment from energy majors caused by pandemic-related uncertainty, does create a scenario where crude oil supply could remain tight for years to come. When the supply of a commodity is constrained and demand is steady or growing, the expected reaction would be in an increase in the price of that commodity.
This macro thesis is particularly important for Occidental Petroleum. Although Occidental is an integrated operator -- it operates chemical plants, in addition to its upstream drilling operations -- it generates the bulk of its revenue from drilling. in other words, Occidental is more sensitive to movements in the spot price of WTI than other major producers. If the spot price of WTI moves higher, Occidental should benefit more than its peers.
As I've previously pointed out, Buffett's love for Occidental might also have something to do with the warrants Berkshire Hathaway holds. These warrants, which trace back to a deal Berkshire made with Occidental in 2019, can be exercised at $59.624 per share to purchase up to 83,858,848 shares of Occidental common stock. It's in Buffett's interest that Occidental's share price remains well above this exercise price.
Stock No. 2 Warren Buffett can't stop buying: Berkshire Hathaway
The second stock Warren Buffett can't stop buying isn't going to be found on Berkshire's 13Fs. Rather, you'll have to head toward the end of the company's quarterly operating results. That's where you'll find detailed share repurchase activity. That's right... Berkshire Hathaway is the second stock the Oracle of Omaha simply can't stop buying.
During the second quarter, Warren Buffett and executive vice chairman Charlie Munger OK'd the repurchase of 1,042 Class A shares and 2,354,444 Class B shares (BRK.B). Based on the average repurchase price listed in Berkshire's quarterly filing, this dynamic duo spent just over $1.3 billion on share buybacks in the June-ended quarter.
But this is just a continuation of what Buffett and Munger have overseen in the buyback department over the past five years. All told, Berkshire's prominent duo have bought back more than $71 billion of their own company's stock since July 17, 2018. That's 20 consecutive quarters of share repurchases!
Since Berkshire Hathaway doesn't pay a dividend, share repurchases are the easiest way for the company to reward long-term investors. Buybacks reduce the number of shares outstanding over time, which increases the scarcity of each remaining share held by investors. For companies with steady or growing net income, share repurchases also provide a boost to earnings per share, which can make a company more fundamentally attractive to investors.
Berkshire's aggressive buyback program may also signal Warren Buffett's and Charlie Munger's confidence in the long-term investment strategy they've employed. Both strongly believe in the American economy over the long run, and the cyclically dependent nature of Berkshire's investment portfolio and owned assets proves it. Over time, Buffett's company shouldn't have any trouble taking advantage of an expanding U.S. economy.
Image source: Getty Images.
The Berkshire Hathaway holding Warren Buffett continues to sell: Activision Blizzard
But there are two sides to this coin. In fact, Warren Buffett and his investment lieutenants have been net-sellers of equities since the start of October. One holding that's being decisively sold, based on Berkshire's 13F history, is gaming stock Activision Blizzard (ATVI).
In the June-ended quarter, Berkshire Hathaway sold more than 34 million shares of Activision Blizzard. This marked the fourth consecutive quarter of selling, with the 14,658,121 shares still held on June 30, 2023, representing a steep drop-off from the 68,401,150 shares held at the end of June 2022.
Activision Blizzard is something of a unique investment for the Oracle of Omaha and his team. Whereas Buffett is usually looking to the horizon when putting his company's cash to work, he noted during the company's 2022 annual shareholder meeting that this is solely a short-term arbitrage play.
In January 2022, tech giant Microsoft (MSFT 1.82%) announced an all-cash offer at $95/share to acquire Activision Blizzard. However, regulatory concerns about the closing of the deal pushed Activision's share price well below the cash value of the proposed deal. Buffett and his team are angling to take advantage of this merger arbitrage opportunity, and have reduced their exposure to Activision stock as its share price has moved higher.
The big question moving forward is whether or not regulators will allow the deal to close. Last week, Microsoft amended its previously announced acquisition terms to hopefully appease the U.K. Competition and Markets Authority. The new terms would transfer the cloud streaming rights for all current and new Activision Blizzard PC and console games released over the next 15 years to Ubisoft Entertainment, once the merger closes.
Regardless of how the Microsoft-Activision deal plays out, it's readily apparent that Warren Buffett and his team have one foot out the door. This was designed to be a short-term holding, and shares are now just 3.5% from the agreed-upon purchase price. It wouldn't be a surprise if Berkshire Hathaway completely exits its Activision position this quarter.
