Warren Buffett, the legendary investor and CEO of Berkshire Hathaway (BRK.B), has once again captured Wall Street's attention with his latest portfolio moves. In the second quarter of 2024, Berkshire Hathaway's 13F filing revealed that Buffett was once again a net seller of stocks, as the conglomerate continued to trim its stake in tech giant Apple (AAPL), as well as other top holdings like Bank of America (BAC) and Chevron (CVX).
However, as Buffett trims some high-profile holdings, he's also upping the ante on some others - like Occidental Petroleum (OXY) and Chubb Limited (CB), which were among the few investments that Berkshire added to during the second quarter. Let's examine why these companies have captured Buffett's attention, and whether investors might want to follow suit by scooping up shares of OXY and CB around current levels.
Chubb Limited
Valued at $110.5 billion, Chubb Limited (CB) is a big property and casualty insurance player, offering a wide range of traditional and specialty insurance products. As the most prominent commercial lines insurer in the U.S., Chubb has coverage options for businesses of all sizes, financial lines and personal insurance solutions.
Warren Buffett's Berkshire Hathaway has been quietly building a big stake in Chubb Limited since 2023, pushing the insurer's stock to record highs and turning heads in the investing world. Berkshire first disclosed its position in Chubb last May, and it's now worth around $7.35 billion, making it the company's 10th-largest holding.
CB stock has been performing well, gaining 36% over the past 52 weeks and rising 20.6% year-to-date - outperforming the broader S&P 500 Index ($SPX) over both time frames.
Chubb's price-to-earnings (P/E) ratio is 12.62, which means the stock is valued right in line with most of its industry peers. The company recently announced a quarterly dividend of $0.91 per share, bringing its forward yield to 1.34%. Chubb has increased its dividend payouts consistently for each of the last eight years, showing its commitment to giving value back to shareholders.
The insurer's appeal to Buffett was clear from its second-quarter 2024 earnings report. Chubb posted impressive results, with net income of $2.23 billion, or $5.46 per share, and core operating income of $2.20 billion, or $5.38 per share. The company's consolidated net premiums written grew by 11.8% to $13.4 billion, with P&C up 10.6% and Life Insurance up 12.3% in constant dollars.
Despite some losses in its investment portfolio, Chubb's book value per share and tangible book value per share increased by 1.3% and 1.7%, respectively. Buffett's investment approach, which focuses on increasing operating earnings, decreasing outstanding shares, and taking advantage of occasional big opportunities, fits Chubb's performance well.
Chubb's acquisition of Healthy Paws, a pet insurance provider, highlights its strategy to diversify and capture growth in niche markets. Plus, launching a new flood insurance system improves its service offerings, showing Chubb's commitment to innovation and customer satisfaction. These moves are expected to strengthen the company's market position and drive future growth.
Analysts have rated Chubb as a “moderate buy” overall, with an average target price of $278.95. Out of the 22 analysts covering the stock, nine recommend a “strong buy,” two suggest a “moderate buy,” 10 say it's a “hold,” and one has a “strong sell” rating.
Occidental Petroleum Corporation
Occidental Petroleum Corporation (OXY) is an integrated player in the energy sector, focused on exploring and producing oil (CLV24) and natural gas (NGU24). The company has three main areas of operation: Oil and Gas, Chemical (OxyChem), and Midstream and Marketing.
The stock has been a major focus for Warren Buffett's Berkshire Hathaway in recent years. Buffett has been consistently increasing his stake in the company, with Berkshire's OXY holdings now totaling around 255.3 million shares, or about 28% of Occidental's outstanding shares.
However, OXY's price action reflects the cyclical ups and downs of a typical energy stock. Occidental shares are down 11.8% over the past 52 weeks, and have pulled back 5.8% on a YTD basis, with OXY erasing a big Q1 price surge driven by higher commodity prices.
Occidental maintains a market cap of around $50 billion. The company's forward P/E ratio is 14.68, which is a discount to its own average historical valuations. Occidental recently announced a quarterly dividend of $0.22 per share, and yields 1.57% with a conservative payout ratio of 22.4%.
In its recent earnings report, Occidental posted earnings per share of $1.03, driven by strong operational performance. The company generated $2.4 billion in operating cash flow, with free cash flow before working capital reaching $1.3 billion. Total production beat the midpoint of management's guidance, with annual sales reaching $28.3 billion and net income at $4.7 billion.
Occidental has a strong position in the Permian Basin, which was further boosted by the company's $10.8 billion acquisition of CrownRock LP earlier in 2024, adding high-quality assets to its already solid portfolio. Additionally, OXY formed a joint venture with BHE Renewables to demonstrate and deploy Direct Lithium Extraction (DLE) technologies, showing its commitment to sustainable and environmentally responsible operations.
The company has also made significant progress in reducing its debt, which had ballooned after the $55 billion acquisition of Anadarko in 2019. As of August 2024, Occidental had achieved $3 billion in principal debt reduction in the third quarter, and expects a total year-to-date reduction of over $3.8 billion.
Analysts rate Occidental as a “moderate buy,” with an average target price of $71.68. Of the 21 analysts covering the stock, seven recommend a “strong buy,” 13 call it a “hold,” and one says it's a “strong sell.”
Conclusion
In conclusion, while Warren Buffett's decision to dump Apple stock and keep building his cash hoard might raise eyebrows, his continued investment in Chubb Limited and Occidental Petroleum speaks volumes about his confidence in these companies. With their strong financial performance, strategic moves, and potential for growth, it's no wonder the Oracle of Omaha is still building his stakes in these two dividend stocks.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
