Warren Buffett has made or agreed to about $23 billion worth of investments in recent weeks as Berkshire Hathaway built stakes in Occidental Petroleum and HP, and struck a deal to buy Alleghany.
Warren Buffett, perhaps the world’s most famous bargain hunter, has been starved of deals in recent years as stocks have soared to record levels, and private equity firms and SPACs have driven up the prices of acquisitions.
Buffett’s luck has finally turned, if his Berkshire Hathaway conglomerate’s recent $7 billion investment in Occidental Petroleum stock, $4 billion bet on HP shares, and agreement to buy Alleghany for $12 billion are any indication.
Says Darren Pollock, portfolio manager at Cheviot Value Management:
“Berkshire’s recent activity reflects one thing: Buffett and his lieutenants will act when sound opportunities present themselves. Making acquisitions only when the price is intelligent is the sole driver of investment behavior at Berkshire. If prices are not appropriate, the cash levels at Berkshire will rise and that’s fine. Money can be used within the company to fund operations across dozens of subsidiaries while the investment team waits for attractive opportunities in financial markets, public or private.
“Occidental is generating tons of free cash flow and using it to pay down debt, repurchase shares, and pay dividends to shareholders – of which Berkshire is now the largest. Buffett likes the company’s CEO, Vicki Hollub. Even after the significant move higher, Occidental’s shares are trading at a very low multiple of free cash flow.
“The merging of Alleghany within Berkshire is a perfect and obvious fit. The company is managed in a very similar way to Berkshire; it prioritizes quality and profitability of insurance underwriting over growth of underwriting, and company leadership is cut from the same cloth as those at Berkshire. It’s valuable to have someone of Joe Brandon’s caliber on the bench at Berkshire.
“Operating within Berkshire, Alleghany’s insurance divisions can take advantage of more underwriting opportunities given the parent company maintains excess insurance capital. Berkshire also stands to gain by increasing the return on Alleghany’s investment portfolio, the majority of which is currently invested in bonds.”