To The Moon

Trading week 15 May to 19 May 2023

It is my personal belief that this week will be one of a “confused” state; up one day and down the next. It remains as such until the Debt Limit “crisis” is resolved.

I have covered (in details) in my 02 May post - Will US Debit Limit Cause US Stock Market To Crash? (click here to read, show some love, give a “LIKe” - tks).

The 2 political parties have turned this into a power struggle between themselves.

Best case scenario - the issue is resolved by this week. Both parties will be meeting today, 16 May after it was postponed last Fri, 12 May. It does not look optimistic though.

Worst case scenario - Treasury Dept will have more work to do by juggling whom to pay and whose payment will be delayed. This will disrupt stock market (based on similar 2011 incident).

For the bold, this might presents a good buying opportunity?

While remaining attentive to the bubbling crisis, its progress and development, I will not fret nor over focus on it because there is nothing I could do. Que sera sera !

Instead, I am more curious about what Mr Warren Buffett is doing:

• During this period of uncertainty & volatility and

• To position $Berkshire Hathaway(BRK.B)$ in the process.

If you have been keeping up with your readings, you would’ve known that Mr Warren Buffett has sold & exited $Bank of New York Mellon(BK)$ and bought into $Capital One(COF)$ .

A lot of media has covered the Capital One purchase.

I am certain that its stock price will definitely “run” today - 16 May 2023; given that there will be “hot” monies to be made.

However, I am drawn more to another post about Berkshire Hathaway.

This post has received no media coverage at all; except by Barron’s.

I am intrigued because Mr Buffett already own 23% of $Occidental(OXY)$ since its initial 2019 investment.

I have covered (in details) in my 08 May post “$OXY Falls Today After What Mr Buffet Said At Saturday Meeting?“ (click here to read, show some love, give a “LIKe”).

Questions Swirling In My Mind:

1. Why is Mr Buffett adding more Occidental Petroleum to his holdings?

2. Should we emulate his investment strategy and buy into the oil stock?

Hope you will be “surprise” by what I have learnt and what I think is unfolding:

1. He is betting on a recovery of the economy. It has been that many months since US re-opened its border since 08 Nov 2021.

2. Occidental Petroleum is a cyclical stock. It should “fly” when the economy is growing and consumer spending returns.

3. Occidental has a strong position in the Permian Basin - US’s largest & most productive shale oil field. The Anadarko acquisition gave Occidental access to >1.8 <illion net acres in the Permian, with low-cost and high-margin production.

4. In terms of business operations, Occidental has been reducing its debt and improving its cash flow since the Anadarko deal. It has (a) sold some non-core assets, (b) cut costs, (c) suspended dividend and (d) repaid $7 Billion of debt (2022).

5. Its Balance sheet reports a Net income of $1.6 Billion in Q1 2023 versus a loss of -$2.2 Billion a year ago.

6. Occidental has a diversified portfolio of assets - (i) Operations in Colombia, Oman, Qatar and UAE, (ii) Has a low-carbon business focusing on carbon capture & storage, renewable energy and hydrogen production. (iii) Equally important, Occidental aims to become net-zero by 2050 and (iv) plans to invest $3 Billion in low-carbon projects over the next 5 years.

7. Bulk of Mr Buffett’s share in Occidental is “Preferred stock” that (a) pays an 8% annual dividend and (b) confers Berkshire Hathaway a priority claim on Occidental's assets in case of bankruptcy.

There is no denying that Occidental seems to be a golden goose, ripe for picking.

Before jumping headlong into it without too much thoughts, here are some reminders why there is a need to pause & consider:

• Investing in any oil company involves risks as this is a “cyclical business” sector.

• There are many uncertainties to consider as well. Eg. Environmental regulations, Competition, and Geopolitical events.

In the past one year, Occidental hit the lowest on 22 Jun 2022 at $55.77.

With its ytd closing price of $58.52 - a “buy-in” opportunity may happen when

• The Debt Limit crisis became a “meltdown” when US Treasury runs out of money to function “properly”.

• The US economy slips into recession in H2 2023.

I will be ready for either scenario should it occur. Will you?

• Do you think you would be interested in Occidental Petroleum?

• Do you think either the Debt Limit or US slipping into recession will bring the US market down?

Please give a “LIKe” ok. The rating is very important to me. Thanks!

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