FRI, JUL 15, 2022
Berkshire's growing Occidental stake is approaching a key level
Berkshire Hathaway's purchases this week of another 4.3 million shares of Occidental Petroleum for $250 million is bringing Warren Buffett's company close to an ownership stake that would allow it to include some the oil giant's earnings in its own results.
Berkshire now reports holding 19.2% of Occidental's outstanding shares.
As the Wall Street Journal notes, "Generally accepted accounting principles recommend that investors include a proportionate share of a company's earnings in their own results once they own at least 20% of the company's common stock."
Since analyst forecasts are calling for Occidental to generate $10 billion in profits this year, Berkshire could wind up increasing its own reported profits by $2 billion.
Occidental Petroleum's headquarters in Los Angeles, September 2013 |Reuters File Photo/Mario Anzuoni
With Berkshire owning warrants from a 2019 $10 billion investment in the company that would allow it to buy another 84 million shares for $59.62 each, about a dollar more than its current price, there is also speculation Buffett might eventually acquire the entire company to get its substantial cash flow, estimated at $19.4 billion this year.
Oil analyst Paul Sankey tells Reuters, "A debt-free Oxy would be a cash machine of the kind Buffett favors."
On the other hand, Carol Levenson, an analyst at a bond research firm, tells Reuters that taking Occidental private "does not fit Berkshire's practice of avoiding boom-bust industries."
In addition, she says, "I don’t believe Oxy would go quietly, having demonstrated a desire to remain independent."
BYD falls on speculation Berkshire may be preparing to sell its stake
Shares of the Chinese electric vehicle maker BYD plunged this week on speculation that what Barron's calls a "trading statistic" may be a sign Berkshire Hathaway is preparing to sell its massively profitable stake in the company.
With Charlie Munger calling the company a "damn miracle," Berkshire paid around $230 million in 2008 for 225 million shares.
That holding is currently valued at around $8.5 billion.
This week's selling was sparked by a Bloomberg report that a stake matching Berkshire's in size had appeared the Hong Kong market's clearing system.
It noted that "while there are many reasons a stake might appear (there), such moves are often seen by traders as precursors to sales because shares must enter the system before transactions can be settled."
Bloomberg quoted an executive at a Hong Kong brokerage as saying, "Only Berkshire would have that many shares as a single investor, so the market is worried Buffett is planning to sell."
But Bloomberg also relayed a report in a state-owned Chinese financial newspaper that a source inside the automaker says Berkshire's stake hasn't changed.
And a CMB International Securities analyst tells Business Insider, "We believe that it is a technical move to convert paper stock into electronic stock."
Munger backs Australian investor he calls 'kindred spirit'
Charlie Munger has nothing but praise for an Australian investor he describes as a "soulmate" who is implementing "the Berkshire playbook all over again."
And he's putting some of his money behind that praise.
In an interview with the Australian Financial Review, Munger said Charles Jennings, who runs the Melbourne-based Stonehouse Corporation, "has a mindset very much like ours. Business fundamentalism and relentless rationality and doing business in a very high-grade way.”
Like Berkshire, Jennings is "seeking a good home" for mostly family-owned businesses where "employees who are transferred with the business will be fairly treated."
And like Berkshire, Jennings is careful about what he buys, picking up only three major companies over 12 years. He says, "You have to be prepared to be patient and focus on the long term."
Munger says Jennings also "treats the businesses with a pretty extreme decentralization, which is very much like Berkshire."
Charlie Munger interview on CNBC's "Squawk Box" on May 8, 2017 | CNBC Photo
Jennings is an American who met his Australian wife while studying in the country 20 years ago. After spending some time in the U.S., they moved to Melbourne in 2010.
Jennings and Munger were introduced to each other by the endowment manager at the University of Chicago, which led to Munger making a relatively small investment in Stonehouse.
He says "the money is not all that material for the Mungers... I did it because I admired him, and he’s a rare type and I thought it would help him."
For Jennings, "Having Charlie become involved in our business has been surreal. I’ve admired him my whole life, and he’s now become a business partner."
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BERKSHIRE'S TOP U.S. STOCK HOLDINGS - Jul 15, 2022
Berkshire's top holdings of disclosed publicly-traded U.S. stocks by market value, based on today's closing prices.
Holdings are as of March 31, 2022 as reported in Berkshire Hathaway’s 13F filing on May 16, 2022, except for Apple, Bank of America, and U.S. Bancorp, which also include shares held as of Mar 31, 2022 as disclosed in New England Asset Management’s 13F filing on May 14, 2022, and except for Occidental Petroleum, which is as of July 13, 2022.
In addition to U.S. stocks, shares held as of December 31, 2021 of China's BYD, as listed in Buffett's 2021 letter to shareholders, are included. The price of those shares in U.S. trading is used to approximate the current market value of the position. The value of the stake as a percentage of the company's market value is fixed at what was listed as of December 31, 2021 in the letter.
The full list of holdings and current market values is available from CNBC.com's Berkshire Hathaway Portfolio Tracker.
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-- Alex Crippen, Editor, Warren Buffett Watch