By Tomi Kilgore
Shares of Occidental Petroleum Corp. continued to outperform its peer group and the broader stock market on Thursday, after the oil- and gas-production company disclosed that Warren Buffett’s Berkshire Hathaway Inc. keeps buying.
But JPMorgan analyst John Royall said Buffett’s involvement is actually a good reason not to buy Occidental’s stock.
The stock /zigman2/quotes/207018272/composite OXY -0.30% climbed 1.1% to $62.11, even as continuous crude-oil futures /zigman2/quotes/209723049/delayed CL00 +1.64% fell 1.1% to $81.23, the SPDR Energy Select Sector exchange-traded fund /zigman2/quotes/206420077/composite XLE -0.23% was unchanged at $72.60 and the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.19% dropped 2.1%.
In a Form 4 filing with the Securities and Exchange Commission, Occidental (OXY) showed that Berkshire Hathaway /zigman2/quotes/200060694/composite BRK.B -0.64% /zigman2/quotes/208872451/composite BRK.A -0.70% spent $352.07 million to buy a total of 5,978,190 common shares in a series of transactions from Sept. 26 through Sept. 28 at a weighted-average price of $58.893, according to a MarketWatch analysis of the data.
With those purchases, Berkshire Hathaway, of which Buffett is chair and chief executive officer, now owns about 194.35 million shares, or 20.9% of the 931.49 million shares outstanding as of June 30. That makes Berkshire by far the largest shareholder, with Dodge & Cox next in line with a 10.6% stake, according to FactSet data.
All of Berkshire’s purchases of Occidental shares came this year, as the company disclosed no ownership as of Dec. 31.
Helped by Buffett’s backing, Occidental’s stock has rocketed 114.3% year to date, while the energy ETF has advanced 30.8% and the S&P 500 has dropped 23.6%.
It’s that outperformance, not the company’s fundamentals, that keeps JPMorgan’s Royall neutral on the stock.
He said the company has shown “solid execution” through the COVID-19 downturn, managed “fairly stable” production at minimal levels of capital expenditure and has done well to lower its debt load.
“All in, we think OXY is executing well and still has legs to the transformation of its capital structure, but the outperformance in shares, led by buying activity on the common shares from Berkshire Hathaway, keeps us on the sidelines, given a lack of clarity on Berkshire’s ultimate intentions,” Royall wrote in a note to clients.
Along with his neutral rating, Royall set a $61 price target on the stock, which was 1.8% below current levels.