What motivates Warren Buffett to continually invest in two extensively downtrodden stocks, which have experienced drops exceeding 30%?
Buffet's Q4 moves reveal his continued interest in two struggling stocks: Occidental Petroleum (OXY) and SiriusXM Holdings (SIRI). Despite their substantial drops, Buffett's team has consistently invested in these companies for various reasons.
Buffet's Bets on Beaten-Down Stocks
Buffet first dived into Occidental Petroleum (OXY) in Q1 2022, and his dedication doesn't seem to waver, given his regular additions to Berkshire's stake. OXY now ranks among Berkshire's top six holdings, yet its shares have plummeted around 35% since late 2022 and dropped almost 20% over the last 12 months.
Buffet has a history with SiriusXM (SIRI) too, first investing in 2016. However, his interest in the satellite radio operator has intensified, as Berkshire's stake in SiriusXM has grown steadily since late 2023. Despite this, SiriusXM's stock has plummeted more than 40% over the past 12 months and remains over 60% below its mid-2023 peak.
Buffet's Favorites: Why OXY and SIRI?
While the performance of these stocks may not appear appealing, there are reasons Buffet continues to invest:
- Valuation: Occidental Petroleum trades at an impressive forward P/E ratio of around 13, significantly lower than the energy sector S&P 500 average of 14.7. SiriusXM's shares also look attractive with a below-average forward earnings multiplier.
- Free Cash Flow: Both Occensional Petroleum and SiriusXM generate substantial free cash flow, a hallmark of Buffet's preferred investments.
- Business Models: Buffet appreciates the robustness of these companies' business models. OXY's technical expertise in carbon capture and storage stands out, while SiriusXM enjoys a near-monopoly in the satellite radio market.
Stick With Buffet's Lead or Go Your Own Way?
While Buffet continues investing in these two beaten-down stocks, it's a tough call for other investors. Both companies offer potential dividends, with SiriusXM's forward dividend yield standing out at around 4%. However, predicting their performance is tricky.
Buffet has demonstrated faith in OXY's potential through his "maintain indefinitely" stance. Its lower-cost acquisition of reserves and carbon capture technology enhance its long-term prospects. However, volatility in oil prices could impact the stock in the short term.
Buffet's long-term bet on SiriusXM's strong business model and competitive position suggests its resilience. Despite competition from streaming services, it could still yield notable returns.
In conclusion, Buffet's consistent investment in Occidental Petroleum (OXY) and SiriusXM (SIRI) despite their recent struggles is due to their valuations, free cash flows, and robust business models. It's up to other investors to decide if they share his confidence in these companies and their potential for recovery.
- Buffett's investment in Occidental Petroleum (OXY) and SiriusXM Holdings (SIRI) in 2022 and 2016, respectively, indicates a proven track record of finding value in financially challenged stocks.
- Buffett's team has continually invested in OXY and SIRI, despite their average drops of 35% and 40% in the past year, respectively, due to their attractive valuations and strong business models.
- In 2022, Buffett increased Berkshire's stake in OXY, making it one of the top six holdings, and his interest in SIRI also grew, contributing to a significant increase in Berkshire's stake in the satellite radio operator.
- Buffett's dedication to OXY and SIRI, despite their struggles, could serve as an inspiration for investors looking for dividend yields, with SiriusXM offering a forward dividend yield of around 4% and OXY's potential for long-term growth due to its lower-cost acquisitions and carbon capture technology.
