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Steep slide - anyone buying?

Steep slide - anyone buying?


Yes, I bought a little more last week, at about the current price.

I don't know if going from about $56 to a peak of $69 in April, back down to about $51 now is quite 'steep', but it's enough of a difference for me to up my stake a bit.

Buffett was buying every time it dipped down under $60, and had 255,281,524 by June 30, not counting the preferred shares that allow him to buy another big slug. The last purchase I can see was June 27, when he bought 2.9m shares at $59.70, so if that's right, either Buffett has enough now or he feels something has changed, or maybe he thinks that the fair price has come down a bit as oil prices have slumped in the last few months from about $82 to $70.

I still think there's an outside chance that Buffett decides to buy the whole thing, even though that probability dropped a lot when he said he had no interest in running the firm. As a pure bet on oil, I think you could do better (e.g. Suncor at 8.5x earnings, or Canadian Natural Resources at 9.9x), but Occidental is now at 13x, can probably do better with low oil prices than SU and CNX, and has the small advantage of having the possibility of getting a Berkshire takeover premium.

I own all three (SU,CNQ, OXY).

CNQ is a well managed company. SU should be alongside CNQ in valuation, but over the years have had various management misses and thus not compounded quite as well as CNQ. In time, as debt decreases and more efficiencies develop, OXY should be throwing off considerable owner earnings.

I read everything available. The prognostications are all over the place. Basically, I have resigned myself to utilize the Heisenberg Uncertainty Principle when evaluating long term petroleum demand and availability. When I coalesce the “data points cloud”, it comes up with assumptions closer to Exxon’s recent information release than to BP’s similar future projections information release.

My FIL was an astute observer and in the 1970s felt the OPEC crew were watching the purchasing value of the dollar go down (inflation) while also being aware of USA domestic oil output declining and so they facilitated a big supply shortfall to suddenly reprice oil in relation to the dollar. There are many folks way smarter than I who are voicing debt concerns. Our portfolio holdings in these three companies are motivated by having productive assets that “should” reprice accordingly in the event a similar 1970s repricing event occurs.

I’ve studied this and read what is available on sovereign currency and high national dent situations. The limited information paints a picture following the path seen in the 1990s Mexican Peso devaluation: 1. The Peso immediately bought about 60% less of what it formerly could buy.
2. Thus the value of money in bank accounts, bonds and debt notes was worth 60% less.
3. Many banks in Mexico were put to the proverbial wall, with many closing or at least wrecking the value of their shareholders.

Mr. Buffett is an astute observer and reader of financial history. Perhaps he is exiting banking holdings because he is viewing risk factors not yet seen by us commoners. At any rate, they say oil is black gold and well-managed productive companies selling cheaply seem to be a worthwhile hedge to have rather than sitting on money.

Uwharrie

Steep slide - anyone buying?

I imagine Mr Buffet is.
He has been an *extremely* consistent buyer at prices below $80. But his reasoning and time frame and constraints are not those of the typical investor, so coat-tailing isn't a slam dunk.

Jim

anyone buying?

I imagine Mr Buffet is.
He has been an *extremely* consistent buyer at prices below $80.


Pretty sure Jim means $60 here. And I don't think he has bought any since the end of June, despite this slide down to almost $50, so his rationale might have changed, or maybe he has just hit the maximum percent he wants to own.

Any reason not buying the OXY-WT instead?

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

He has been an *extremely* consistent buyer at prices below $80.
...
Pretty sure Jim means $60 here.

Sorry, yes.
I was probably subconsciously thinking of Burlington Northern, when he did the same thing, accumulating consistently when below a fixed round target price, in that case $80.

Jim

% 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?

The warrants can be thought of as deep in the money call options at a bargain premium. There are no call options available for 2027. The premiums for those listed for Jan 2026 are much higher than the 20 cents or so you pay for the warrants. Plus the trading volumes and liquidity are much higher for warrants than options. Finally there are anti-dilution provisions on the warrants.

Cash interest rates of 4.5 - 5% almost fully compensate for the loss of dividends.

You may not recall, but we had this exchange in TMF in 2022.

https://discussion.fool.com/t/oxy-warrants/66152

Cash interest rates of 4.5 - 5% almost fully compensate for the loss of dividends.

You may not recall, but we had this exchange in TMF in 2022.


Wow, I had completely forgotten that, thanks for the reminder. I think if I want to buy Occidental again I may buy the warrants.

dtb

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