Did Warren Buffett just buy a stock of memes?

  • Value investor Warren Buffett’s company Berkshire Hathaway has increased its stake in the energy company to up to 20% of Occidental Petroleum shares.
  • Buffett and his team have been given the green light to buy up to 50% of the company’s stock.
  • Thanks to volatile oil prices, Occidental Petroleum has also been a target for short sellers.

Figure 1: Did Warren Buffett just buy a stock of memes?

(Learn more about Wall Street memes: The 5 Best Meme Stock Bets Right Now)

Why Did Warren Buffett Buy Occidental Petroleum Stock?

If Warren Buffett buys a stock, it must be a good deal, right?

In July, the world’s most famous value investor added to its position in western oil OXY. Through its holding company, Berkshire Hathaway BRK.A BRK.B, Buffett now owns 20% of the oil giant.

And on August 19, the Federal Energy Regulatory Commission granted Berkshire Hathaway approval to purchase up to 50% of the company’s stock.

Naturally, Buffett’s purchase sparked speculation about his decision. Many investors were probably surprised that Buffett bought a larger stake in a cyclical sector such as oil and gas, especially as the world moves away from the use of fossil fuels.

We can easily answer this last question: Occidental Petroleum is investing in carbon capture technology, which is expected to be a trillion dollar market in the future.

In 2020 and 2021, Occidental Petroleum seemed on the verge of bankruptcy. The COVID pandemic initially caused oil prices to drop, and Occidental had recently acquired rival Anadarko Petroleum in a deal worth around $55 billion.

However, in the second half of 2021, thanks to rising energy prices, the company started generating massive cash flow.

The company managed to write off debts valued at $6.7 billion last year. This allowed Occidental to increase its annual dividend by 1,200% in February 2022.

It’s no wonder Occidental Petroleum’s stock is up more than 120% year-to-date. During the company’s latest earnings call, CEO Vicki Hollub said shareholders can expect a gradual increase in the company’s dividend.

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Is Occidental Petroleum a stockpile of memes?

According ETF Roundhill Meme MEME Criteria, Occidental Petroleum is a meme stock.

Every 14 days, the ETF updates as follows:

  1. Using a “social media activity score” which quantifies popularity and engagement, a large number of actions are selected from social media platforms such as Twitter and Reddit.
  2. Fifty stocks, ranked by popularity, are selected from the list.
  3. Roundhill orders these 50% from highest to lowest short interest percentage.
  4. The fund invests in the first 25 stocks of this filtered list.

At the mid-August update, OXY was the fund’s largest holding, with a weighting of 5%. Since then, it has lost the top spot but is still among the top 25 ETF holdings.

Any purchase made by the Oracle of Omaha tends to resonate with retail investors on social media. And it’s no different with the Buffett Western buy.

But there’s another reason why we can consider Occidental Petroleum a meme stock: around 12.3% of the oil company’s free float is short.

One of the reasons for this bearish trend may be the dilution of Occidental Petroleum shares. The company issued a large amount of convertible securities, which had a negative impact on its earnings per share (EPS) ratio.

Also, bears may be concerned about oil prices. This year’s sharp rise has caused oil stocks to parabola in recent months as meme traders flocked in – OXY shares hit a four-year high.

But now oil prices are falling.

The essential

Occidental Petroleum has traded like a meme stock this year.

And Warren Buffett’s eventual purchase of 50% of the company’s common stock could be a near-term catalyst for the stock to take off even further, especially as retail investors and meme traders follow the stock. .

In any case, the consensus on Wall Street is that Occidental Petroleum is a moderate buy. TipRanks indicates that, of the last 14 ratings provided by analysts over the past three months, there has only been one “sell” recommendation. The rest is divided between “purchases” and “holds”.

(Disclaimer: This is not investment advice. The author may own one or more stocks mentioned in this report. Additionally, the article may contain affiliate links These partnerships do not influence editorial content. Thank you for supporting Wall Street Memes)

About Robert Wright

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