Republic Risk: Buffett's New "Buy" Zone
Berkshire Hathaway (BRK.A) isn't waiting around this time for Occidental stock to dip back under $60. Plus, the S&P 500 has pushed below its 200-day moving average, where nothing good happens.
RED on the S&P 500 and RED on the Russell 2000
Each morning, we assess the total flows of the market by measuring statistical metrics on a very specific number of stocks to determine broader sentiment and the momentum trend. When these readings turn red, we focus on cash, trade positive sectors, or take inverse positions against indices.
The situation grew much worse for the Nasdaq after it dropped more than 2% on Wednesday. This morning, the index is falling fast again after Meta Platforms (META) earnings. Investors are concerned that this tech selloff will accelerate to Amazon, another large component of the Index. We remain on the sideline.
On the S&P 500, we’ve seen 21 stocks fall more than 10% in the last week, compared to just one that has increased 10%. The Russell 2000 is 226, down 10%, compared to just 38, up 10% in a week. That’s a lot of capital flowing out of these equities.
Dear Fellow Expat:
I start today with a more positive bend. I know that it’s largely a Fear-based situation across the markets. But when we focus on our Equity Strength Signals and wait until there is a positive reading, we can enjoy life and not worry about the carnage that most people didn’t see coming.
Today, our good friend Warren Buffett and his company Berkshire Hathaway (BRK.A) have purchased another position in Occidental Petroleum (OXY). The energy company - also the largest landholder in the Permian Basin - saw shares drop from about $66.00 to $62.50 quickly this week. The price move happened after Chevron (CVX) announced a $53 billion deal to purchase Hess (HES).
Following Exxon’s (XOM) planned purchase of Pioneer Natural Resources (PXD) - analysts expected that Chevron would make a big splash in the Permian Basin, where it already has a lot of acreage. It seemed possible given Occidental’s massive real estate holdings in the region, connections to Warren Buffett, and attractive valuation. The Wall Street Journal even reported that Chevron considered a deal for OXY.
But Chevron went in a different direction - buying a company without exposure in the Permian. Instead, Hess’ most important real estate is part of an offshore project in Guyana, a nation that most people couldn’t find on a map if you spotted them three letters.
Occidental, meanwhile, is doing fine without Chevron. It checks a lot of boxes on the F score and strong margins. It’s paying down debt and should eventually get to Investment Grade. While it’s not our favorite Permian stock (that goes to Permian Resources - PR), Occidental does have something others do not.
Warren Buffett.
Buffett doesn’t have the world’s best success rate with commodity companies now. He’s better with companies that move oil - like his railroad company - than playing the volatility of energy prices. See his struggles with ConocoPhillips (COP) in 2008.
But… that doesn’t matter. Buffett’s company has bought into the long-term vision of OXY CEO Vicki Hollub, and Berkshire has been buying Occidental stock within a specific price range for the last 18 months.
Roughly every major purchase of OXY stock by “insiders” in the last 18 months has come from Berkshire. Last night, we saw that Berkshire bought another $246,408,342 in stock at an average price of $62.83.
That price is decidedly higher than what we dubbed the Buffett Buy Zone earlier this year. In March 2022, Berkshire used short-term weakness in the price under $59 to buy hundreds of millions in stock.
Now, this purchase sets up unique ways for long-term investors to generate income or pick a position below Buffett’s recent entry point. In May, I wrote one of my first articles here at the Florida Republic called “The No. 1 Warren Buffett Trade on Earth” - and that trade is even more valuable today than it was back then.
Let’s look at what sectors are worth trading today and the current threats lurking.
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