Approximately 25% potential increase is predicted for a single stock holding $12.9 billion worth in Warren Buffett's investment portfolio, as suggested by Wall Street analysts.
Warren Buffett once put forth, "Wall Street is the only locale where people journey in a Rolls Royce to gain counsel from those who commute via subway." This suggests that Buffett isn't too fond of Wall Street analysts' perceptions.
However, Wall Street analysts hold a favorable stance on some stocks that Buffett appreciates. For instance, nearly 13 billion dollars from Buffett's Berkshire Hathaway portfolio is invested in a single stock that might increase by 25% within the next year, as per Wall Street estimates.
Buffett's top pick
Buffett is moving more funds towards bolstering Berkshire's cash reserve than investing in stocks currently. Nevertheless, one stock Buffett has regularly acquired since the beginning of 2022 is Occidental Petroleum (OXY -2.18%).
Occidental now ranks as the sixth most substantial holding in Berkshire Hathaway's portfolio, and Berkshire's share in the U.S. oil and gas producer is worth around 13 billion dollars at current market prices.
Buffett highlighted eight stocks in his latest letter to Berkshire Hathaway shareholders he expects the conglomerate to retain for an indefinite period. Occidental was among them, and it's the only one he has continued purchasing frequently.
Why Buffett adores Occidental
Buffett admires Occidental due to several factors. Its vast oil and gas reserves in the U.S. constitute a major attraction. Additionally, Buffett appreciates Occidental's carbon capture and storage projects. He also respects Occidental CEO, Vicki Hollub, who "knows how to extract oil from rock, a talent rare and valuable to her shareholders and her country."
Why Wall Street is gung-ho about Occidental
Analysts seem to be more optimistic about Occidental Petroleum than any other stock in Berkshire Hathaway's portfolio. The average predicted increase for the stock over the subsequent twelve months is approximately 25%. Even the most bearish analysts surveyed by LSEG suggest a potential raise of 6.5% over Occidental's current share price.
Occidental's impressive Q3 results, disclosed on Tuesday, may partly explain analysts' enthusiasm. The company reported a substantial operating cash flow of 3.8 billion dollars in Q3. Adjusted EPS surpassed the consensus estimate. Moreover, Occidental's production exceeded the midpoint of its forecast range.
Valuation might be a vital factor in Wall Street's positive sentiment towards Occidental. Occidental's share price is 29% lower than its 2022 peak. It has a forward price-to-earnings ratio of 12.5, less than the forward earnings multiple of 14.6 for the S&P 500's energy sector.
While not all analysts are bullish on Occidental, some have offered an "underperform" rating. Several analysts recommend holding Occidental instead of purchasing the stock, despite setting positive price targets.
Is Occidental Petroleum a smart purchase now?
While I wouldn't bet my fortune that Occidental Petroleum's share price will surge 25% within the following twelve months as projected by Wall Street, it's fair to say that energy independence's significance will likely increase in the coming years. Occidental's domestic oil and gas assets should see a rise in value. I'm cautiously optimistic about the potential of Occidental's carbon capture technology.
Furthermore, I am confident that Buffett will continue purchasing Occidental stock. Berkshire currently holds 27.3% of the company, with permission from the Federal Energy Regulatory Commission to own up to 50%. Buffett hinted at additional purchases in his shareholder letter earlier this year, mentioning that Berkshire holds "warrants" offering the right to "materially increase our ownership at a fixed price."
Buffett disregards Wall Street's opinions on Occidental. But I suspect their optimistic outlook on the stock is justified.
Buffett's appreciation for Occidental Petroleum extends beyond its substantial oil and gas reserves and carbon capture projects. He also values the company's CEO, Vicki Hollub, for her expertise in extracting oil from rock.
Despite Buffett's personal beliefs, Wall Street analysts are overwhelmingly optimistic about Occidental Petroleum's future. Their average prediction is a 25% increase in the stock's price over the next year, with even the most pessimistic analysts expecting a 6.5% increase.
