Warren Buffet’s Berkshire Hathaway (NYSE: BRK.A) has tripled its stake in Ally Financial and increased its holdings in the video game maker Activision Blizzard, betting on its deal with Microsoft Corp, new filings showed.
What is Warren Buffet Buying?
Berkshire ditched some of its holdings including its $8.3 billion investment in Verizon, according to Monday regulatory filings. The conglomerate also dumped its holdings in drug royalty acquirer Royalty Pharma.
Generally, Berkshire slowed their investment pace in the second quarter amid a stock market drawdown. The conglomerate bought $6.2 billion and sold $2.3 billion worth of stocks in the second quarter, compared to $51.1 billion in purchases and $9.7 billion in sales in the prior quarter.
The Omaha, Nebraska-based company ended the second quarter with an equity portfolio worth $327.7 billion, $125.1 billion of which were allocated to the world’s largest company by market cap, Apple.
Berkshire also poured over $33 billion into oil giants Chevron and Occidental Petroleum in the latest three-month period to tackle the sharp surge in oil prices following Russia’s invasion of Ukraine. Since then, the conglomerate has bought $1.7 billion worth of Occidental stock, increasing its stake in the oil driller to 20.02%. Berkshire also owns $10 billion in Occidental’s preferred shares.
Berkshire’s stake in Ally Financial increased to 30 million shares from around 9 million in the second quarter, while its stake in Activision Blizzard grew to 68.4 million shares, from 64.3 million.
With its Activision investment, Buffet and Berkshire are betting on investors’ concerns over the regulatory approval for the video game maker’s $68.7 billion deal with Microsoft.
In addition, Berkshire also increased its stakes in several other companies in the second quarter including Apple, Celanese, Markel, McKesson, and Paramount Global. Among reduced holdings are GM, Kroger, Store Capital, and US Bancorp.
Big Bet on a ‘Cash Machine’
Buffet’s stake in Occidental of almost 20% led some investors to expect that the legendary investor would eventually take over the oil company and transform it into a “cash machine.”
The company made its first investment in Occidental in 2019 when it purchased its preferred shares to help the company fund a deal for a rival. That initial investment brought warrants for 83.9 million shares.
Analysts believe that Buffet’s bullishness on Occidental comes after its cash flow potential increased, while its stock surged around 80% year-to-date driven by higher gas prices. This year marks a sharp U-turn for Occidental which almost collapsed when it took significant debt to acquire Anadarko Petroleum for $35.7 billion before the coronavirus pandemic dented oil demand. The oil market recovery has allowed Occidental to repay its debts at a quicker pace and slashed its interest costs.
If Buffet further increases his stake in Occidental beyond 20%, he would receive a fifth of the oil company’s profit through the Berkshire Energy unit. Alternatively, he could keep increasing his stake and eventually buy the company for its cash flow, which is expected to hit $19.36 billion this year, up from just $3.84 billion two years ago.
Some believe that Buffet will make the same move with Occidental as he did with Burlington Northern Santa Fe Corp. Berkshire started purchasing BNSF shares in 2006, and absorbed the company in 2010.
The conglomerate held $106.3 billion in cash at the end of the first quarter.
“Holding cash is a low return undertaking,” said oil analyst Paul Sankey. “A debt-free Oxy would be a cash machine of the kind Buffett favours,” he added.
Warren Buffett has continued to be an active trader with the new fillings showing that the legendary investor has increased his bets on Ally Financial and Occidental Petroleum.