Warren Buffett is one of the most widely followed investment managers in the world. And there's good reason for that. His 60-year run at Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has been nothing short of phenomenal. Investors who followed Buffett into the company have realized a compound average annual return of about 20% since Buffett took over the business in 1965. That's nearly twice the average annual return of the S&P 500.

But it appears that Buffett has struggled in recent quarters to find great ways to deploy Berkshire's growing cash reserves. His potential best opportunities are getting only a small amount of capital infusion, as it appears that he's determined that many of the best large-cap stocks are overvalued. As a result, Berkshire put only $3.2 billion of cash into equities in the first quarter, leaving about $347 billion in cash and Treasury bill investments.

Some of that $3.2 billion went into an undisclosed stock exempted from disclosure by the Securities and Exchange Commission. The rest, which appears to be about $1.8 billion, went into seven different stocks reported on Berkshire's quarterly 13F filing.

One of those stocks stands out as an incredible value for investors right now, and it could be worth adding to your portfolio.

Here are the seven stocks Buffett just bought

Buffett admits he would love to buy more stocks. "Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned," he wrote in his letter to shareholders in February. But for Buffett to buy shares in a company, they must be offered, and offered at good value.

Evidently he saw only a handful of stocks that looked like good values last quarter. Here are the seven Berkshire has disclosed so far:

1. Heico
2. Verisign
3. Sirius XM
4. Pool Corp.
5. Domino's Pizza
6. Constellation Brands (NYSE: STZ)
7. Occidental Petroleum

It's worth pointing out that all of these businesses are relatively small. Occidental Petroleum sports the largest market cap of the group at $42 billion. And Berkshire already owns nearly 27% of that company.

Buffett doesn't see a lot of opportunities for Berkshire to invest tens of billions in a great company trading at a fair value. With Buffett strategically selling off some holdings while Berkshire's subsidiaries generate considerable free cash flow, the cash is piling up.

Everyday investors can invest as much money as they want in any of the seven companies above. But some of them are arguably better values than others, especially considering price movements since Buffett's purchases, some of which date all the way back to early January. Of the seven, there's one that looks like a particularly good value right now.

Here's the best of the bunch

All seven companies are great businesses. Each has at least one source of competitive advantage, and they generally trade for good value relative to earnings. But if I had to choose one of Buffett's latest purchases to invest my own money in, it would be Constellation Brands.

Constellation Brands is the owner of top Mexican beer brands like Corona and Modelo. It absolutely dominates U.S. sales for Mexican lagers. It also owns several wine and spirits brands, although its portfolio got a little bit smaller when it divested its mainstream wine brands earlier this month. Constellation is refocusing its portfolio on high-end brands. The beer business is its most important, accounting for over 80% of sales and over 90% of operating income in fiscal 2025.

It has a stranglehold on the Mexican beer import category in the U.S. The company said it accounts for over 90% of spending in the segment. And it's seen strong growth in sales for both Modelo and its smaller Pacifico brands over the past year, despite secular headwinds against the overall beer category. Total alcohol consumption appears to be declining, especially among younger generations, and new entrants like hard seltzer and ready-to-drink cocktails continue to eat into beer's market share.

Those headwinds and a new tariff this year on Mexican imports into the United States have led many investors to sell the stock. A disappointing earnings report in January didn't help, either. The stock currently trades more than 20% below where it started the year.

But the outlook for the business is strong. Management expects sales growth in the low-single-digit range over the next three years as the wine and spirits business continues to drag down the beer business. Strategic divestments over time could refocus more of the business on higher-margin and growth opportunities. Overall, management also expects its operating margin to expand 1 to 2 percentage points from last year's levels by 2028.

The expected net result is $6 billion to $7 billion in free-cash-flow generation over the next three years, and management has earmarked about $4 billion of that for share repurchases. That would reduce its current share count by over 13% at its current price. Management forecasts it'll buy up about 9% of shares outstanding over the next three years, with expectations that the price of the stock will rise.

Given the resilience of Constellation's beer brands and management's focus on capital returns and high-margin opportunities, investors should see strong earnings growth after adjusting for divestments. Nonetheless, the stock trades for less than 14 times forward earnings estimates. That makes it worth considering as an addition to any value investor's portfolio right now.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The new year can be a time to reevaluate your portfolio. Did you buy too many high-risk stocks that did poorly in 2024? Now is the perfect time to switch things up and build a durable portfolio that can sustain and grow your wealth over the long haul.

Many of us wait for the new year to invest more money into our retirement accounts. Maybe you had a nice bonus at the end of 2024 that you want to tuck away as savings. If you have $10,000 ready to invest in 2025, there are plenty of cheap-looking stocks you can buy and hold for the long haul.

Here are three stocks legendary investor Warren Buffett owns at Berkshire Hathaway to buy in 2025.

1. American Express: A durable credit card giant

One of Buffett's largest and longest-held positions is American Express. The credit card giant has been a fantastic long-term performer, especially since Buffett started buying it in 1991. With its vertically integrated payments network, American Express has a competitive position over other credit card companies. And with big travel perks like travel lounges, hotel deals, and cash-back savings with partners such as Uber, American Express has an enviable position with wealthy clients around the world.

This value proposition is why American Express should durably grow over the long haul, and why Buffett has never sold a share since initially buying the stock. The brand continues to add new credit cards to its network — 3 million added last quarter alone — which will drive more spending and profits over the long term.

Management sees revenue growing 10% annually and earnings per share (EPS) growing even faster. Today, the stock trades at a price-to-earnings ratio (P/E) of 23. That's slightly above the company's long-term average, but is still attractive for a business that plans to grow EPS at the mid-teens level annually. Buy some American Express stock for your portfolio in 2025 and sit tight with the position.

2. Occidental Petroleum: US fossil fuel production

The world still consumes oil and natural gas. Fossil fuels have been a big part of our energy picture and will be for decades. Even places like Norway — which has rapidly adopted electric vehicles — still consume similar levels of oil compared to a few decades ago.

The United States is far behind in electric vehicle adoption and is in a transition of rapid industrial build-out due to the government's reshoring policy. One big beneficiary of these trends should be Occidental Petroleum, one of the largest oil and natural gas producers in the United States. Last quarter, the company was producing 1.4 million barrels of oil (or natural gas equivalent) per day, which was a record. Even with oil prices well below highs set a few years ago, Occidental Petroleum generated $1.5 billion in free cash flow last quarter.

Over the last 12 months, Occidental Petroleum has generated $4.5 billion in free cash flow. This looks rather cheap versus a market cap of $49 billion, and likely why Buffett has piled into the stock. Unless oil prices crash, this stock will do well over the long term and can be a permanent energy hedge for your portfolio in 2025 and beyond.

AXP PE Ratio data by YCharts

3. Ally Financial: Banking for the 21st century

The last stock on my list is a lot smaller than Occidental Petroleum and American Express, making it a smaller position in the Berkshire Hathaway portfolio. Still, the conglomerate is the company's largest shareholder and owns around 10% of its common stock. Enter Ally Financial, one of the largest digital banks in the world.

Spun out from General Motors during the financial crisis, the automotive lending giant turned itself into an online-only consumer bank, with over $100 billion in deposits. Customers have flocked to the bank because of the high interest rates it pays on deposits, something legacy banks can't match with higher overhead costs.

Investors are tepid about Ally Financial because of rising loss rates in the automotive sector and the headwinds presented by rising interest rates on its loan book. With the Federal Reserve lowering interest rates and the automotive sector stabilising, I think Ally Financial can get back on the right footing in 2025. Buffett and his team likely agree, which is why they haven't sold a single share during this downturn.

As of this writing, Ally Financial has a P/E of around 15 based on a net income figure that is well off of its all-time high. As earnings recover in 2025 and 2026, Ally's P/E should shrink to dirt-cheap levels, which will likely lead to a rising stock price, rising dividend payouts, and share repurchases. This formula should make investors who buy and hold Ally stock quite happy over the long haul.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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There's arguably not a money manager on Wall Street that has the ability to command the attention of professional and everyday investors quite like Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) CEO Warren Buffett. In his six decades as CEO of Berkshire, he's overseen a cumulative return in his company's Class A shares of more than 5,460,000%, as of the closing bell on January 2.

Mirroring the Oracle of Omaha's trading activity, which can be done using Berkshire Hathaway's quarterly filed Form 13Fs, has been a seemingly surefire investment strategy for decades.

Even though Buffett has been a net seller of stocks to the tune of $166 billion over an eight-quarter stretch (October 1, 2022 through to September 30, 2024), he's still been buying shares of a select group of time-tested businesses.

As we turn the page to 2025, Buffett is betting big on the following five stocks.

Sirius XM Holdings

One of the most interesting stocks that Berkshire's chief can't stop buying of late is satellite-radio operator Sirius XM Holdings (NASDAQ: SIRI).

Sirius XM completed a merger with Liberty Media's Sirius XM tracking stock following the close of trading on September 9, and also effected a 1-for-10 reverse stock split. Whereas most companies conducting reverse splits do so to avoid delisting from a major stock exchange, Sirius XM was in no danger of delisting. Rather, its split seems solely focused on getting its stock back on the radar of institutional investors who won't purchase stocks trading below $5 per share.

The beauty of Sirius XM's operating model is twofold. First, it's a legal monopoly. There are no other licensed satellite-radio operators, which, more often than not, affords the company strong subscription pricing power.

The other attractive aspect of Sirius XM's operating model is that its primarily subscription driven. Whereas terrestrial and online radio companies rely almost exclusively on advertising revenue to keep the proverbial hamster on its wheel, Sirius XM generated close to 77% of its net sales from subscriptions and roughly 20% from advertising through the first nine months of 2024. The advantage of Sirius XM's approach is that its cash flow remains steadier during periods of economic uncertainty.

Additionally, Sirius XM stock is historically cheap, which is something the value-oriented Oracle of Omaha can appreciate. Amid a historically pricey stock market, Sirius XM is valued at just over 7 times forward-year earnings and its dividend yield is approaching an all-time high of 5%.

Occidental Petroleum

When 2022 began, Berkshire Hathaway held $10 billion worth of Occidental Petroleum (NYSE: OXY) preferred stock (yielding 8% annually), but not a single common share of stock. Over the last three years, Buffett and his top advisors, Ted Weschler and Todd Combs, have acquired 264,178,414 common shares of Occidental stock.

Historically, energy stocks haven't accounted for a sizable percentage of the portfolio Buffett oversees at Berkshire. But that's changed, with over $30 billion, combined, currently invested in Chevron and Occidental. It's a pretty clear signal that Buffett and his crew expect the spot price for crude oil to remain elevated.

Perhaps the biggest catalyst for oil is that global energy companies were forced to slash their capital expenditures (capex) for three years during the COVID-19 pandemic. Even though capex has returned to normal, increasing crude supply isn't going to happen overnight. When the supply of a high-demand commodity is constrained, it usually provides a lift to its spot price.

A higher spot price for crude is particularly impactful for Occidental Petroleum, which generates the lion's share of its revenue from its drilling operations. If the price of crude oil rises, operating cash flow for Occidental will disproportionately benefit, relative to its peers. Just keep in mind that the reciprocal is also true, with Occidental's cash flow being hit harder than other drillers when the spot price of crude declines.

Domino's Pizza

A third phenomenal business that Warren Buffett is betting big on in the new year is one of consumers' most beloved brands, Domino's Pizza (NASDAQ: DPZ). Domino's was the biggest buy made by Buffett and his crew during the September-ended quarter.

One of the business characteristics Domino's possesses that the Oracle of Omaha has previously emphasised the importance of to investors is trust. Roughly 15 years ago, Domino's marketing campaign admitted that its pizza wasn't very good and that it had to do better. Over time, the company's transparent marketing approach, along with process and product innovation, has worked wonders.

Something else that's finding the mark is Domino's five-year "Hungry for MORE" initiative. Introduced by CEO Russell Weiner in December 2023, Hungry for MORE emphasises a reliance on technology to improve output and product consistency, as well as leans on the company's franchisees to enhance the value of its brand.

The international opportunity for Domino's Pizza shouldn't be overlooked, either. The company is on track for its 31st consecutive year of international same-store sales growth. This speaks to its brand value and reliance on product innovation to drive growth.

Chubb

Another stock the Oracle of Omaha very clearly wants to own in 2025 is property and casualty insurance company Chubb (NYSE: CB). Chubb was the stock given "confidential treatment" that Buffett and his team built a sizable position in between July 2023 and March 2024.

What makes insurance stocks so desirable for value investors like Warren Buffett is the stability of their operating model and premium pricing power. When loss events occur, insurers like Chubb have reason to raise premiums. But they can also increase premiums when claim losses are low with the justification that catastrophe events are inevitable.

Chubb also benefits from the niche focus of its homeowner insurance segment. The company predominantly insures higher-value homes, which leads to more lucrative premiums. High earners are less likely than average-earning workers to adjust their spending habits or fail to pay their bills when economic disruptions occur.

Lastly, insurers like Chubb are reaping the rewards of the Federal Reserve undertaking its most aggressive rate-hiking cycle in four decades (from March 2022 through July 2023). Insurers invest their float — the premium collected that hasn't been paid out in claims — in safe, short-term Treasury bills. The higher the yield, the more interest income the company can generate.

Berkshire Hathaway

The fifth magnificent stock Warren Buffett is betting big on for 2025 is none other than shares of his own company, Berkshire Hathaway. Though the September-ended quarter marked the first quarter out of the last 25 that Buffett didn't repurchase Berkshire's shares, he's collectively bought back around $78 billion worth of his company's stock since mid-July 2018.

Since Berkshire Hathaway doesn't pay a dividend, buybacks serve a number of key purposes. For starters, they reward patient investors. A steadily declining share count gradually increases the ownership stake of existing shareholders. In short, it reinforces the long-term investing ethos that Buffett and the late Charlie Munger preached for decades.

Secondly, share repurchases can increase earnings per share (EPS) for companies like Berkshire Hathaway that have steady or growing net income. A 12.6% aggregate decline in Berkshire's outstanding share count since mid-2018 has increased the company's EPS and made it more attractive to fundamentally focused investors.

It could also be argued that ongoing share buybacks reinforce Buffett's belief in the company he's helped build over six decades. What better way to demonstrate to investors a belief that Berkshire is still undervalued than to purchase around $78 billion worth of stock in a little over six years.

Finally, with a record $325.2 billion in cash, cash equivalents, and U.S. Treasuries on Berkshire's balance sheet, the Oracle of Omaha has quite the buffer to repurchase his company's stock.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Arguably the world's greatest stock picker isn't picking many stocks these days. Warren Buffett has been a net seller of stocks for eight consecutive quarters. I suspect when Berkshire Hathaway discloses the transactions it made in the fourth quarter of 2024, that count will increase to nine.

There's a reason Buffett isn't buying many stocks — and it's the same reason he ranks among the greatest investors of all time. Buffett is a master stock picker because he's highly selective about which stocks he buys.

Your chances of investing success will likely be greater if you're as picky as Buffett. Don't buy any stock in 2025 unless it passes this Buffett test.

A two-part test

Can we really know the "magic" process Buffett uses to select the stocks he buys? Actually, yes. In his 2013 letter to Berkshire Hathaway shareholders, the legendary investor revealed exactly what he does to select stocks. Buffet revealed a two-part test in that shareholder letter. By the way, it's very similar to the process he uses to identify companies for Berkshire to acquire.

Buffett first determines whether he can "sensibly estimate an earnings range for five years out or more." The operative word there is "sensibly." He doesn't pluck numbers out of the air but instead thoroughly reviews a company's business along with industry trends to make the best earnings estimate possible.

Note that five years is a minimum estimation period. Buffett wants to avoid investing in a business that might temporarily deliver strong earnings growth only for that growth to quickly evaporate. In his letter to Berkshire shareholders, Buffett wrote that if he can't estimate future earnings, he moves on to the next stock.

Buffett's second step is to buy a stock only if it trades at "a reasonable price" relative to the lower end of his estimated earnings range. He will buy a stock only if it's reasonably valued using this approach. Again, if the stock doesn't pass this second step, he moves on.

Simple, yet difficult

This two-step test used by Buffett might seem simple. However, it's more difficult to follow than you might think.

For one thing, "sensibly" estimating a company's earnings over five years or more can be challenging. If you've ever wondered why Buffett didn't invest in Apple or Amazon earlier than he did — or never bought stocks such as Nvidia that turned out to be massive winners — it's because he couldn't project their future earnings with enough confidence.

In his 2013 shareholder letter, Buffett explained that he needed to recognise "the perimeter of our 'circle of competence' and stay well inside of it." He knew (and still knows) how important understanding a business and industry is to estimating earnings.

It's also tough in some market environments to find stocks valued attractively enough to pass the Buffett test. That has clearly been the case in recent quarters. Otherwise, you can bet Buffett would have bought more stocks instead of amassing a cash stockpile of over $325 billion for Berkshire.

US stocks that might pass the Buffett test in 2025

Are there some stocks that might pass the Buffett test in 2025? I think so.

Energy Transfer (NYSE: ET) is a leading North American midstream energy company. Even with the increasing use of renewable energy, Energy Transfer's pipelines should transport natural gas, natural gas liquids (NGLs), and crude oil for years to come. The company also pays a juicy distribution that yields around 6.5%.

Don't look for jaw-dropping growth from Energy Transfer, but average annual growth of between 3% and 5% should be easily attainable. That's how much the company expects to grow its distribution. Even at the low end of this range, Energy Transfer's valuation looks attractive, especially considering its distributions provide a solid head start to a double-digit annual total return.

Buffett probably views Occidental Petroleum (NYSE: OXY) as one of the few stocks that meet his test. He has continued to regularly scoop up shares of the oil and gas producer, most recently during a sell-off last month.

I also like Oxy's prospects. However, investors should note that Berkshire owns warrants that allow it to buy the stock at a predefined share price. This undoubtedly makes the stock even more attractive to Buffett than it will be to other investors who don't benefit from such a deal. Occidental Petroleum might pass the two-step test for Buffett but not for others.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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If there's one person in finance that almost everybody knows about it's probably Warren Buffett, the CEO of Berkshire Hathaway. His long-term investment success is nothing short of incredible.

Recently he's been selling Chevron (NYSE: CVX) and buying Occidental Petroleum (NYSE: OXY), but you should probably stick with Chevron. And maybe avoid Occidental Petroleum.

Here's why Buffett's decision is fine for him, but probably not right for your portfolio.

The energy sector is volatile

Before getting into the differences between Chevron and Occidental Petroleum (usually just called Oxy), it's important to discuss the broader energy sector within which they operate.

Oil and natural gas are commodities known for dramatic and often swift price swings. A great many things can impact energy prices, including supply, demand, economic growth, recessions, and geopolitical events. When oil prices rise, energy companies like Chevron and Oxy tend to perform better on the top and bottom lines. When energy prices fall, the reverse is true.

That said, some companies have proven better able to handle the industry's swings. Many of them are integrated energy companies.

Both Chevron and Oxy would be classified as integrated, with assets that span from the upstream (energy production) through the midstream (pipelines) and to the downstream (refining and chemicals). Each of these segments of the industry performs differently at different points in the energy cycle. When put together, they tend to soften the swings.

Chevron and Oxy are not interchangeable

Here's the thing. Chevron is an industry giant sporting a market capitalisation of around $270 billion. Occidental Petroleum is large, but still much smaller than Chevron, with a market cap of roughly $50 billion. Oxy has material aspirations to be a bigger player, which is why Warren Buffett invested in the business in the first place, helping the company beat Chevron in a bidding war for Anadarko Petroleum.

Recently, Buffett has been buying Occidental while selling Chevron (he still owns them both; he's just shifting between the two), suggesting he sees more long-term appeal in the smaller but growing energy company.

However, there's a major caveat for average investors. Oxy's approach is extremely aggressive. It took on too much debt when it bought Anadarko and ended up having to cut its dividend when oil prices tumbled shortly thereafter. Chevron, by comparison, has increased its dividend every year for 37 consecutive years. That's an incredible record in an industry that's known for its volatility.

Notably, Chevron also has an attractive 4.4% dividend yield. That's well above the 1.6% you'll collect from Occidental Petroleum and the 3.3% of the average energy stock, using Energy Select Sector SPDR ETF as an industry proxy. In fact, Oxy's dividend still hasn't recovered to its pre-cut level.

To be fair, the upheaval after the Anadarko acquisition has resulted in management operating more conservatively. For example, debt reduction was a prime talking point when it announced its more recent acquisition of Crown Rock (a much smaller deal). But the fact still remains that Chevron is in a stronger financial position than Oxy.

CVX Debt to Equity Ratio data by YCharts

In fact, Chevron has one of the lowest debt-to-equity ratios in the integrated energy arena. For most small investors, it simply makes more sense to buy a large, diversified energy company with a long track record of dividend growth supported by a strong balance sheet, especially if you compare it to a smaller peer with more leverage and a history of dividend cuts and overreaching.

What's good for Buffett may not be good for you

Warren Buffett's portfolio is gigantic and he is holding on to a huge cash position. He can afford to take risks that small investors probably shouldn't.

For conservative income investors, Occidental Petroleum is that risky, smaller company.

If you are looking for a reliable dividend stock in the energy patch, Chevron and its above-industry-average 4.4% yield is very much worth buying and holding for the long term.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Sir John Templeton's quote below perfectly captures how investor emotions influence the market's ups and downs. He famously said:

Bull markets are born on pessimism, grow on scepticism, mature on optimism, and die on euphoria.

Similarly, Warren Buffett advises to be greedy when others are fearful and the vice versa, emphasising the importance of reading market expectations and participants' emotions.

In this article, I'll use Howard Marks' market cycle concept to determine where we might be in the share market right now. I'll also examine what other famous investors are saying and positioning for the cycle.

Second year of the bull market

Howard Marks, co-founder of Oaktree Capital Management, uses several key indicators to understand the market cycle. These include investor sentiment, valuation levels, credit availability, risk appetite of investors, and market behaviour.

To sum up, in his bestselling book Mastering the market cycle, he says opportunities for investment gains improve when:

• The economy and company profits are more likely to swing upward than down
• Investor psychology is sober rather than buoyant
• Investors are conscious of risk or — even better — overly concerned about risk
• Market prices haven't moved too high.

Based on these factors, it's safe to say that we are no longer in a bear market, with the overall market sentiment being positive. So if we're not in a bear market, where exactly are we in the share market cycle?

Ken Fisher, Fisher Investments' founder and a son of respected investor Philip Fisher, sees further upside in the US stock markets from here. In June, he said:

Once a market that's had a bear market has hit a bottom and gotten to become a one-year old, it almost always gets to be a two years old. We're in that second year now from the bottom in October 2022.

Another useful sentiment indicator is the VIX index (INDEXCBOE: VIX). Nicknamed the 'fear gauge,' the VIX Index measures how much the S&P 500 Index (SP: .INX) is expected to fluctuate over the next month.

A high VIX indicates anticipated market changes due to uncertainty or fear, while a low VIX suggests stable conditions.

The VIX index has ranged from 10 to 79 and is currently at 13.33, implying some investor optimism. For context, the VIX index hit 65.5 at the peak of the COVID-19 pandemic in March 2020.

What does this all mean to investors?

While we wouldn't encourage anyone to dramatically change their share portfolios based on the market outlook alone, it's worth noting that some market sectors may be starting to look expensive.

Fisher suggests growth stocks tend to do better in the early bull cycle, and high-quality value stocks — such as energy shares or luxuries — outperform in the later part of the upcycle and into a downcycle. His latest trading history appears to confirm that he's expecting this bull market to continue.

According to the May 2024 filing to the US Securities and Exchange Commission (SEC), Fisher Asset Management's top holdings were dominated by 'big tech' shares like Microsoft Corp (NASDAQ: MSFT), Apple Inc (NASDAQ: AAPL), and Nvidia Corp (NASDAQ: NVDA) as of the end of March 2024.

It's worth noting that the fund didn't actively add to these positions, however. The fund also has positions in other value shares, including energy stocks.

This is similar to Warren Buffett's Berkshire Hathaway Inc (NYSE: BRK.B), which has also built a fairly large position in energy stocks, including Chevron Corp (NYSE: CVX) and Occidental Petroleum Corp (NYSE: OXY).

In conclusion, some investors believe we haven't yet reached the 'euphoria' phase. So, keep dancing, but always know where the exit is if the music suddenly stops.

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The 10F filing from Warren Buffett's Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) is probably one of, if not the, most anticipated on the entire American stock market.

The last time Berkshire Hathaway filed a 10F report, we covered some of Buffett's significant stock sales, as well as the far fewer buys.

So what does the latest report tell us?

What has Berkshire Hathaway been buying (and selling)?

Compared to the November 10F, this February's report was far tamer. However, Buffett was still a net seller of stocks over the three months to 31 December.

Here are some of Berkshire's major sales, according to WhaleWisdom:

• HP Inc (NYSE: HPQ), with Berkshire selling US$2.4 billion worth of stock
• Apple Inc (NASDAQ: AAPL), US$1.93 billion sold
• D.R. Horton Inc (NYSE: DHI), with US$710 million sold
• Paramount Global Inc (NASDAQ: PARA) with US$450 million sold
• Markel Group Inc (NYSE: MKL) with US$259 million sold

In contrast, Buffett's buys were a lot less enthusiastic:

• Chevron Corp (NYSE: CVX), with Berkshire buying US$2.36 billion worth of stock
• Occidental Petroleum Corp (NYSE: OXY), US$1.17 billion purchase
• Sirius XM Holdings Inc (NASDAQ: SIRI), US$167 million purchase

Buffett doubles down on big oil

This is an interesting report to go through. Buffett is famous for his buy-and-hold investing, once commenting that his favourite holding time for an investment is "forever". So it's interesting to see Berkshire trim its largest position (accounting for more than 50% of Berkshire's portfolio) in Apple. Of Course, US$1.9 billion is something of a drop in the bucket – Berkshire still owns almost US$166.5 billion worth of Apple stock.

But the sale is still significant, given what Buffett has previously said.

Also significant is Buffett's buyup of oil giant Chevron, as well as Occidental. Last quarter's 10F filing revealed that Berkshire had offloaded shares in Chevron. As such, it's notable to see Buffett buying them back up, as well as shares in fellow oil stock Occidental. The recent volatility in oil prices (and thus the share prices of oil stocks) could have something to do with this.

Buffett's other major sale was in tech company HP. HP shares haven't gone anywhere for a while but did rally around 20% between October and December last year. So perhaps this gave Buffett an excuse to sell a big chunk of shares.

Foolish takeaway

Buffett's portfolio moves often seem to contradict the advice that he so generously showers on ordinary investors. Because we rarely get explanations or insights into Buffett's thinking (and if so, they usually come months later), I tend to think it's best to take what Buffett says as gospel advice, rather than what he does.

The post What can ASX investors learn from Warren Buffett's latest buys and sells? appeared first on The Motley Fool Australia.

US company Occidental Petroleum CEO Vicki Hollub told CNBC that the oil market will face a supply shortage by the end of 2025 because the world is not replacing crude oil reserves fast enough.

What does this mean for Woodside?

This could spell good news for Woodside shares. If there is less supply than demand for oil, it could push up the oil price, which may then boost Woodside's profitability. It costs roughly the same to extract oil each month, so a boost to revenue would probably translate directly into higher net profit as well.

But, keep in mind that Woodside earns a large amount of its profit from LNG (liquified natural gas), which is a different commodity. A 10% rise in Woodside's oil earnings won't necessarily translate into a 10% in overall profit. In the HY23 result, crude oil and condensate made up US$1.76 billion, or 24%, of Woodside's overall revenue from hydrocarbons.

Oil supply forecast

According to reporting by CNBC, Hollub said 97% of the oil being produced right now was discovered in the 1900s. The world has reportedly replaced less than 50% of the crude oil produced in the last decade. The CEO said:

We're in a situation now where in a couple of years' time we're going to be very short on supply.

At the moment, the market is "oversupplied", which has kept a lid on prices despite the conflict in the Middle East. Places like the United States, Brazil, Canada and Guyana have pumped record amounts of oil as demand slows amid a faltering economy in China.

Hollub thinks the supply and demand balance and outlook will "flip" by the end of 2025. She said:

The market is out of balance right now, but again, this is a short-term demand issue. But it's going to be a long-term supply issue.

The oil-producing companies of OPEC are forecasting that global oil demand will grow by 1.8 million barrels per day in 2025 thanks to a recovery of the Chinese economy. The growth of demand is expected to beat the growth of supply of 1.3 million barrels per day by countries outside of OPEC.

Woodside share price snapshot

Over the past six months, shares in the company have fallen 16%, so it's cheaper to invest in than it was before. Added to the prediction from the Occidental CEO, this seems to be an interesting time to be looking at Woodside shares.

And possibly lending weight to the prediction is Occidental's links with investing legend Warren Buffett. Buffett's company Berkshire Hathaway owns at least 28% of Occidental, so he likely holds its leadership in high regard. 

The post What this Warren Buffett-linked CEO's prediction could mean for Woodside shares appeared first on The Motley Fool Australia.

In fact, the last dividend Berkshire paid out was back in the 1960s. Buffett has even joked that he must have been in the bathroom when the payment was approved.

Ever since then, Berkshire shareholders haven't received a single dollar of dividend income.

But that doesn't mean Buffett himself is averse to receiving dividends. In fact, Berkshire is probably one of the largest single recipients of dividend income in the world. Our Foolish colleagues in Buffett's home country of the United States estimated back in June that Berkshire is on track to bank more than US$6 billion in passive dividend income over the coming 12 months.

What's even more mindboggling is that it is estimated that US$5.17 billion of that passive income will be coming from just seven underlying shares in Berkshire's portfolio.

Those Berkshire bankrollers are as follows:

• Occidental Petroleum Corp (NYSE: OXY)
• Bank of America Corp (NYSE: BAC)
• Apple Inc (NASDAQ: AAPL)
• Chevron Corporation (NYSE: CVX)
• Coca-Cola Co (NYSE: KO)
• Kraft Heinz Co (NASDAQ: KHC)
• American Express Company (NYSE: AXP)

So Buffett is someone who evidently knows a thing or two about building a stream (in this case a raging torrent) of passive income.

But how can we take Warren Buffett's experience to our own ASX and build a stream of passive income from ASX dividend shares that will last a lifetime, as Buffett's has?

Building a Buffett-inspired passive income portfolio

I think there are two key lessons here.

The first is that investors should find high-quality dividend payers that have the financial strength to raise their dividends over time in a meaningful, inflation-beating way.

Take Apple and Coca-Cola. Apple only started paying its investors dividends in 2012. But since then, it has increased its annual payouts substantially every year. Just this year, the technology titan boosted its quarterly dividend payouts by 4.35% from 23 US cents a quarter to 24 US cents.

Meanwhile, Coca-Cola has one of the best dividend growth streaks in the world, having just raised its annual dividend for the sixtieth (yes, 60) year in a row.

The second is that investors should seek a wide range of these quality passive income payers. You'll notice that of those seven Berkshire bankrollers listed above, two are oil shares (Chevron and Occidental), one is a tech stock (Apple), two are financials stocks (Bank of America and American Express), and two are consumer staples giants (Coke and Kraft-Heinz).

Buffett, and Berkshire by extension, is thus able to rely on a wide range of top-tier companies that all operate in different corners of the market. This reduced the portfolio's single-sector risk substantially and ensures that Berkshire's stream of passive income remains strong.

I myself attempt to incorporate these two lessons into my own passive income portfolio. That's why I invest in a range of high-quality shares like Washington H. Soul Pattinson and Co Ltd (ASX: SOL), Wesfarmers Ltd (ASX: WES), National Australia Bank Ltd (ASX: NAB), MFF Capital Investments Ltd (ASX: MFF), Telstra Group Ltd (ASX: TLS), and Endeavour Group Ltd (ASX: EDV).

Collectively, I hope these companies will be half as kind to me in terms of generating passive income as Buffett's investments have been to him.

The post Here's how I'd use the Warren Buffett method to target lifetime passive income from ASX shares appeared first on The Motley Fool Australia.

We are very fortunate to be able to get a comprehensive look at Warren Buffett's investments every three months. That's because his investment house, Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) is a publically traded company that has to disclose its investments every quarter.

So to kick things off, let's take a look at the current top ten investments of Berkshire Hathaway, according to CNBC's Buffett portfolio tracker:

1. Apple Inc (NASDAQ: AAPL), at 47% of Berkshire's portfolio
2. Bank of America Corp (NYSE: BAC) at 8.3%
3. Coca-Cola Co (NYSE: KO) at 7.5%
4. American Express Company (NYSE: AXP) at 6.7%
5. Chevron Corporation (NYSE: CVX) at 6.2%
6. Kraft Heinz Co (NASDAQ: KHC) at 3.9%
7. Occidental Petroleum Corporation (NYSE: OXY) at 3.6%
8. Moody's Corp (NYSE: MCO) at 2.3%
9. Activision Blizzard Inc (NASDAQ: AVTI) at 1.2%
10. HP Inc (NYSE: HPQ) at 1.1%

So a rather interesting and somewhat eclectic collection of investments there.

How to invest, Berkshire Hathaway style

What immediately stands out is Berkshire's massive stake in Apple. At 47% of Berkshire's entire portfolio, it's clear that Buffett has chosen this company as its ride-or-die stock. And it's not hard to see why. Apple indisputably possesses one of the best brands on the planet. The company and its management are of the highest calibre and have shown a consistent ability to generate monstrous profits for decades now.

The other investments are worth analysing on their own merits though. Bank of America, American Express, and Moody's are all financial stocks. Chevron and Occidental are both oil shares. Coca-Cola needs no explanation and nor does food behemoth, Kraft Heinz. Activision Blizzard is a gaming giant behind names like Call of Duty and World of Warcraft. And HP Inc is the office supplies company most of us would be familiar with.

So how would Buffett invest $5,000 in ASX shares today if he could? It's difficult to compare the ASX and US markets, seeing as we simply don't house the same kinds of world-dominating companies that America does.

But let's give it a go anyway.

If I were to deploy $5,000 into ASX shares to try to replicate a Buffett portfolio, here's what I would do.

Building a $5,000 ASX share portfolio like Buffett

I would start with $1,000 in Commonwealth Bank of Australia (ASX: CBA) shares. CBA is Australia's largest bank and shares many of the same characteristics as Bank of America. CBA also provides popular credit products, a la American Express, and provides other financial services for ASX bankers and investors, although not quite in the same manner as Moody's.

But I, and many other analysts, regard CBA as the ASX's best-run bank, and I think that it would be Buffett's pick on the ASX.

Another $1,000 would go into Woodside Energy Group Ltd (ASX: WDS) shares. Woodside is the ASX's largest oil and gas producer, and shares similarities with Occidental and Chevron in this regard. Buffett is clearly bullish on energy right now, and I think Woodside would be a strong contender for energy exposure on the ASX.

Bega Cheese Ltd (ASX: BGA) could be a nice local substitute for Kraft Heinz. Bega's dairy products and nut spreads are popular here in Australia, and provide similar exposure to the kinds of defensive consumer sales products as Kraft Heinz. So there's another $1,000 gone.

With the final $2000, I would invest in the iShares S&P 500 ETF (ASX: IVV). For one, Buffett has often touted the benefits of investing in a low-cost S&P 500 index fund, which the IVV ETF most certainly is.

However, the primary reason I have chosen this ETF is that it gives us ASX investors an easy way to invest in many of those top Buffett holdings ourselves. Buffett's top investment, Apple, is also the largest holding in the iShares S&P 500 ETF with a 7.4% weighting. Berkshire Hathaway itself is number six, while Chevron, Coca-Cola, and Bank of America are also weighted towards the top of the pile.

Foolish takeaway

That's how I think Warren Buffett would build a $5,000 ASX share portfolio here on the ASX today. I don't claim to speak for the great man, of course. But I think this is the closest way that ASX shares can reflect the intentions of what Buffett has done with his own holdings.

The post How to invest $5,000 in ASX shares today like Warren Buffett might appeared first on The Motley Fool Australia.

Luckily for us, his stock selections are public knowledge because the investment company he runs, Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE: BRK.B), is listed. So, we get regular updates on his holdings.

Here are Buffett's top 10 stocks by value, according to Berkshire Hathaway's FY22 full-year results released in February.

Top 10 stocks that Warren Buffett owns

What are the lessons for investors buying ASX 200 stocks? 

Buy large-cap ASX 200 stocks

Buffett's top 10 holdings are full of multi-billion-dollar global companies that own household-name brands.

Obviously, he's extremely positive on Apple given the almost 40% allocation of his total portfolio!

He refers to Apple as Berkshire Hathaway's "third-largest business" after its wholly-owned insurance and railroad companies. He reckons Apple is "probably the best business I know in the world".

You could also say he's in love with Bank of America, Chevron, and American Express, given they and Apple together comprise an astonishing 68% of the investment pie!

Large-cap companies are typically industry giants with large valuations (or market capitalisations). Their sheer size is a big factor enabling them to weather all types of economic conditions.

This means safety and stability for the investor.

As mature companies, their share price growth may be limited unless they are in rapidly growing and evolving industries, such as technology (like Apple), or have a global market for their products (also like Apple).

The trade-off in the limited share price growth is strong, reliable, and regular dividends. This makes them a favourite choice among income investors and those who want lower-risk investments.

Fun fact: Buffett's Coca-Cola investment returns $704 million in annual dividends.

The three biggest large-cap ASX 200 stocks available to investors are BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), and CSL Limited (ASX: CSL). 

Buy and hold high-quality businesses for the long term

Buffett is a value investor, meaning he targets high-quality businesses and buys them when they are trading below their intrinsic worth or book value.

He also describes himself as a "business picker" rather than a "stock picker".

That means he uses fundamental analysis to get a real understanding of the companies he is considering buying, and to keep tabs on the ones he already owns. He spends most days in his office reading.

Buffett buys long, which means he's patient. He doesn't get caught up in the day-to-day price movements of his investments based on announcements with short-term share price ramifications.

Buffett's strategy means he has fun in both bear markets and bull markets. How smart is that?

Bear markets provide opportunities to buy below value, and bull markets power up those share prices.

A few examples of long-term holds within Buffett's top 10 stocks are Bank of America, which he first purchased in 2011, American Express (1964), Moody's (2000), and Coca-Cola (1988).

He bought Coca-Cola just months after the Black Monday 1987 market crash. He saw an opportunity to nab a high-quality business while the share price was down, and he went hard too — putting $1 billion into the stock. That's a big number today, let alone back in 1988!

There's also a lesson in moving with the times and adapting your investments in accordance with general business and societal trends, such as the rise of technology.

Buffett first bought Apple in 2016 and Activation Blizzard in 2021. Apple is the biggest US tech stock and Activation Blizzard is in the top 30.

The biggest ASX 200 information technology stocks are WiseTech Global Ltd (ASX: WTC) and Xero Limited (ASX: XRO). But they're babies in size compared to the big US tech stocks.

Keep cash on hand for opportunities

As we covered last month, Buffett moved US$23.3 billion (A$35 billion) from the market into cash between 30 June and 31 December 2022.

Berkshire Hathaway went into 2023 with cash, cash equivalents, and treasury securities (bonds) worth US$128.7 billion.

In his annual newsletter released in February, Buffett explained:

As for the future, Berkshire will always hold a boatload of cash and U.S. Treasury bills along with a wide array of businesses.

We will also avoid behavior that could result in any uncomfortable cash needs at inconvenient times, including financial panics and unprecedented insurance losses.

Spare cash means you can enjoy some satisfying dollar-cost averaging on ASX 200 stocks when the market is down.

Let's talk about diversification

In total, Buffett has 49 stocks in his portfolio, which sounds like a lot. But it's not when you look at the enormity of the whole pie (about US$340 billion).

In short, he's got huge sums invested in each of those 49 stocks. Using the top 10 as an example, if one of those companies goes bust, he'll lose billions. That's probably why they're all large caps. The likelihood of a large cap going under is incredibly small, so perhaps that's why Buffett feels safe to invest big.

Things look a little different when you're an ordinary investor with, say, $50,000 in ASX 200 stocks. You can't really afford to make mistakes and not having a diversified portfolio is a huge one for us.

We should point out that Buffett has good diversification across different industries.

Diversification is important because it gives you safety. The more ASX 200 stocks you hold and the more industries you are exposed to, the lesser your risk.

We don't know what is around the corner. Imagine holding a portfolio full of travel stocks in early 2020.

A quick way of ensuring you have great diversification is not to bother trying to pick ASX 200 stocks at all. Instead, take Buffett's advice and buy a low-cost S&P 500 index fund instead.

That's his key recommendation for ordinary investors looking to set themselves up for retirement.

The S&P/ASX 200 Index (ASX: XJO) closed the session yesterday at 7,362.2 points, down 0.05%.

The post Which stocks does Warren Buffett own (and what can ASX 200 investors learn from this)? appeared first on The Motley Fool Australia.

So what can we learn from Buffett's 2022 moves here on the ASX?

Well, let's check out how Buffett has been managing his cash over the year that (almost) was.

So according to a comprehensive analysis of Buffett's moves from our Fool colleagues over in the US, Buffett made several big moves in Berkshire's portfolio this year.

Buffett's Berkshire bets big on oil

Amongst his bigger bets was a massive increase in Berkshire's exposure to oil. Berkshire already owned significant chunks of oil giants Chevron and Occidental Petroleum. But Buffett more than quadrupled Berkshire's stake in Chevron in 2022, growing the company into Berkshire's fourth-largest position. He also boosted Occidental's position significantly as well.

So Buffett clearly thinks the oil space is one well worth investing in for 2023 and beyond. This might not bode well for motorists in the new year.

Another sector Buffett has apparently been focusing on in 2022 is tech. Buffett has famously been slow on the uptake when it comes to tech shares. He barely owned any tech stocks until 2016. But that was when Berkshire started buying Apple.

A combination of aggressive buying and a ballooning Apple stock price has resulted in Apple now being the largest holding in Berkshire Hathaway's portfolio. And by a mile too.

Berkshire's tech portfolio is expanding

Buffett hasn't bought too much more of Apple in 2022. but he has been loading up on two other tech stocks: HP and Taiwan Semiconductor Manufacturing Co (TSMC) HP is a dominant manufacturer of printers and PCs. he reportedly purchased a chunk of HP when it was sitting at a price-to-earnings (P/E) ratio of just 6, so this looks like a classic value play.

His purchase of TSMC is more interesting. TSMC is by far the most dominant manufacturer of advanced semiconductor chips in the world, with more than half the world's market share. It's Buffett's first foray into the world of semiconductors, but one he has built out aggressively.

His purchase of more than US$4 billion worth of TSMC stock has made this company into Berkshire's tenth-largest position today.

So what can we ASX 200 investors learn from Buffett's 2022 moves?

Well, it's pretty obvious that Buffett is still betting big on oil and tech – specifically semiconductors. Unfortunately, the ASX doesn't have much in the way of semiconductor stocks. But there are plenty of oil and energy shares, including Woodside Energy Group Ltd (ASX: WDS) and Santos Ltd (ASX: STO) to choose from.

The post What can ASX 200 investors learn from Warren Buffett's big moves in 2022? appeared first on The Motley Fool Australia.

Warren Buffett has been making a bold bet on oil prices over the past year. His company, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), has been buying shares of oil giants Chevron (NYSE: CVX) and Occidental Petroleum (NYSE: OXY) hand over fist to capitalize on the rise in crude prices.     

While oil prices have cooled off on fears that we're about to enter a global recession, that slump has reversed recently thanks to OPEC. The group of oil-producing nations has surprisingly agreed to cut its production by a whopping 2 million barrels per day, giving crude prices a lift. That should provide a boost to Buffett's oil stocks in the future. 

Taking matters into their own hands

Oil prices have been on a wild ride this year. The price for Brent crude, the global benchmark variety, started 2022 below $80 a barrel. It soon spiked to more than $120 a barrel following Russia's invasion of Ukraine. It remained in the triple digits well into the summer before cooling off on concerns that the global economy was starting to slow. Brent recently bottomed out in the low $80s.

However, it surged above $90 a barrel on rumors that OPEC was about to cut its production. While initial reports suggested the group, along with other nations collectively known as OPEC+, would slash their output by 1 million barrels per day, they have since agreed to an even deeper reduction of 2 million barrels per day. It's an astonishing development considering that analysts believe the market might not have enough oil supply to meet demand. 

The cut should at least put a firm floor under oil prices. Meanwhile, it sets crude up to rally sharply if there's an unexpected supply issue or demand doesn't cool, as many anticipate in a global recession.

Giving Buffett a helping hand

Stable to rising crude prices should be a boon to Buffett's oil holdings. Berkshire Hathaway has gobbled up more than 163.5 million shares of Chevron, equal to 8.4% of the oil giant's outstanding shares. That position is worth over $25 billion, making it Buffett's third-largest stock holding at 8% of his portfolio.   

Meanwhile, Buffett took advantage of a decline in Occidental Petroleum's stock price last month as oil prices cooled off to buy another 6 million shares. He now holds 20.9% of the company's outstanding shares. That position is currently worth nearly $13 billion. Buffett has regulatory approval to take that position up to 50% in the future.

Chevron has capitalized on rising crude prices this year. It produced $21.8 billion of cash flow from operations during the first half, nearly double the $11.2 billion it generated during that same period last year. That gave it the funds to boost its investments in traditional and new energy by 50%, increase its dividend for the 35th straight year, raise the top end of its share repurchase range to $15 billion, and pay down additional debt.

Chevron's cash flow ebbs and flows with oil prices. Because of that, it will likely see a boost from OPEC's move to bolster crude prices. That would give it more money to allocate toward creating value for shareholders.

Occidental Petroleum is in the same boat. It has cashed in on higher oil prices this year. It generated a record $4.2 billion of free cash in the second quarter alone. That gave it the funds to repay more than $8 billion of debt by May, quickly exceeding its target. This achievement gave Occidental the confidence to significantly increase its dividend and launch a $3 billion share repurchase program while setting an additional $5 billion debt reduction target. 

The oil company is more likely to be able to repay debt and return capital to shareholders at a faster rate now that OPEC is making this surprising move to support oil prices. This catalyst could fuel a continued surge in Occidental's share price this year.

Boosting Buffett's bold oil bets

OPEC has had enough of crude's recent slide. That's evident in its surprising decision to slash its output by 2 million barrels per day. This move could drive oil prices higher in the coming months.

That likely rebound should be a boon to Buffett's oil investments because it will enable Chevron and Occidental Petroleum to generate more cash. They can use those funds to reduce debt and return more money to investors, which should help boost their stock prices. That unexpected intervention makes Buffett's oil stock bets look like they'll continue to pay off.  

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Warren Buffett has been buying shares of oil giant Occidental Petroleum (NYSE: OXY) hand over fist these days. His company, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), recently bought another 5.99 million shares, boosting its stake to 20.9%. Buffett took advantage of the recent slide in oil prices and Occidental Petroleum's stock to increase Berkshire's position in one of its top 10 holdings in late September.  

While oil is the primary focus of Buffett's bold bet on Occidental Petroleum, it's likely not the only thing he sees in the company. Most investors have overlooked that Occidental is a leader in carbon capture and sequestration (CCS), a process that captures carbon dioxide and sequesters the greenhouse gas underground. Occidental sees it as a $3 trillion to $5 trillion future global market opportunity. It could one day supply the company with as much earnings and cash flow as its current oil and gas business.   

That potentially massive market opportunity is leading the company to continue taking strides to capitalize on the upside it sees ahead. This strategy could give the oil stock the fuel to deliver big-time returns for Buffett in the coming years.  

Securing another potential partnership

Occidental Petroleum has been securing partners to pursue a wide array of CCS opportunities. Its latest one is with Western Midstream Partners (NYSE: WES), a master limited partnership (MLP) it used to control. The partners signed a letter of intent to pursue opportunities to produce and deliver low-carbon intensity oil and gas products. 

Occidental will explore installing carbon capture facilities on its upstream oil and gas activities in the Texas Delaware and Colorado DJ Basins. Meanwhile, Western Midstream will explore installing carbon capture facilities on its natural gas plants and other major gathering and treating facilities. Western would also explore providing carbon dioxide transportation services from those capture facilities to Occidental's carbon dioxide delivery facilities. The companies intend to consider providing carbon management services to other emitters interested in reducing their emissions.

This partnership can potentially reduce the emissions of Occidental Petroleum's oil and gas production in the Delaware and DJ Basins, enabling it to market net-zero output. Meanwhile, it could supply Western Midstream with a stable source of cash flow as it transports carbon dioxide to Occidental's facilities.   

Building out a robust solution

That partnership is the latest in a string of agreements Occidental has signed this year to build its CCS business. It's creating an end-to-end solution that can manage the entire lifecycle of carbon.

In late August, the company started construction on the world's largest direct air capture (DAC) plant in Texas' Permian Basin. Once operational in 2024, the plant can capture up to 500,000 metric tons of carbon dioxide per year, with the potential to scale up to 1 million metric tons in the future. That's one of 70 DAC facilities the company intends to deploy worldwide by 2035. 

Occidental has already signed commercial contracts to support that first facility. Aerospace leader Airbus has agreed to purchase 400,000 tons of carbon removal credits over four years with an option to secure more volume in the future. Meanwhile, SK Trading will buy up to 200,000 barrels of net-zero oil for five years, supported by the carbon dioxide removed from the atmosphere in Occidental's first DAC. 

The company has also secured several other midstream partners to help it transport captured carbon to sequestration and utilization sites. It signed a deal with Enterprise Products Partners (NYSE: EPD) to explore a potential carbon dioxide transportation and sequestration solution for the Texas Gulf Coast. Enterprise would use a combination of new and existing pipelines to support the project. Meanwhile, Occidental signed a similar agreement with EnLink Midstream (NYSE: ENLC), focusing on the Mississippi River corridor from Waggaman to Baton Rouge, Louisiana. EnLink would also use new and existing pipelines to transport the captured carbon. 

Finally, the company has been locking up underground pore space suitable to sequester carbon. It has leased more than 30,000 acres of subsurface pore space from leading timberland REIT Weyerhaeuser (NYSE: WY) in Louisiana. Weyerhaeuser will continue to manage the forest while receiving fees for leasing the pore space to Occidental. The company signed a similar deal with Manulife Investment Management to lease 27,000 acres of timberland in Western Louisiana for a potential carbon sequestration hub. 

The overlooked upside potential of Buffett's top oil pick

Most investors see Buffett's continued buying of Occidental Petroleum stock as a bet on oil prices. While that's certainly the case, investors shouldn't overlook the enormous upside potential of the company's emerging CCS business. It could provide a big boost for Buffett's investment in the coming years if the market develops as Occidental anticipates.   

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post This top Warren Buffett stock has enormous overlooked upside potential appeared first on The Motley Fool Australia.