No. of Recommendations: 3
Any reason not buying the OXY-WT instead?
That's a very interesting question. I knew the warrants existed but I thought they were related to the preferred shares that Berkshire obtained in 2019 as part of his financing of the Anadarko deal. But I didn't remember these OXY-WT warrants that the company issued to all its shareholders, one for every 8 shares owned, each warrant allowing its holder to purchase one share of OXY for $22, until 2027. I vaguely recollect this was something Icahn instigated, hoping to reduce the value of Buffett's warrants I think, although the Berkshire warrants' strike price has to be adjusted for distributions so I think this stratagem misfired. Icahn reportedly still owns those warrants, which might be a reason to stay away from them, since Icahn may very well have to liquidate everything he owns as his company spirals into a well-deserved bankruptcy.
Since OXY shares closed yesterday at $51.29, that means the OXY-WT unsurprisingly were worth about $51.29 - $22 = $29.29; they actually closed at $29.52.
I'd be interested in hearing others' opinions about these warrants, but at first glance, their value should roughly track the stock's value, as long as the stock's price remains above $22. You would also miss out on the dividend, which was $0.84 last year. or a 1.7% yield at the current rate. And you would have that extra $22 to invest in the meantime, so there is some leverage involved, plus an implicit $22 PUT option on the stock. In other words, if the share price were to tank, you would lose value down to $22 (when the warrants would have an intrinsic value of zero), but then you would stop losing money.
In case this seems like a crazy scenario, OXY's price did drop to $9 in October 2020. In fact, Buffett still had some shares in Occidental, which he sold close to the lowest price (one instance of Buffett not following his mentor's maxim, "Be fearful when others are greedy & greedy when others are fearful.")
Anyways, at first glance, they seem like an interesting alternative - you get a leveraged exposure to the possible upside of the OXY share price, some protection on the downside, and interest on your $22 savings to invest, losing only the 1.7% dividend. Do you or anyone else have any other thoughts on why the OXY-WT might be better than OXY?
Regards, DTB
