Warren Buffett is on a roll. Here is what's behind his big moves and what could come next

Published Sat, Apr 23 20226:54 AM EDTUpdated Sat, Apr 23 20227:30 AM EDT

After a six-year deal-making drought and a long stock-selling streak, Warren Buffett is back with a bang. Since March, the "Oracle of Omaha" has put a whopping $23 billion in cash to work — $11.6 billion to acquire insurer Alleghany , more than $7 billion in additional investments in oil giant Occidental Petroleum and $4.2 billion for a stake in PC maker Hewlett-Packard . While that's only about 16% of Berkshire Hathaway's massive $146.6 billion cash hoard, Buffett's recent action could be signifying his confidence in American businesses amid uncertainties as well as his growing appetite for cheap stocks after a market correction. Before the buying spree, the Omaha-based conglomerate had been a net seller of stocks for the past five quarters as Buffett saw few bargains among surging equities. But with the S & P 500 down as much as 15% at its 2022 low, the billionaire investor is back in the stock-picking game as overall valuations pulled back from record highs. "With the pandemic now under control, he is undoubtedly seeking investment opportunities that satisfy his standards of low risk and high expected rate of return," said David Kass, a finance professor at the University of Maryland's Robert H. Smith School of Business. "The recent declines in the stock market resulting from the anticipated tightening of monetary policy by the Federal Reserve may provide additional attractive opportunities for Buffett in the near future." Here's a complete breakdown of his big-money moves and what could be next for the 91-year-old investing legend. Occidental Berkshire nearly doubled its stake in Occidental in March, by ploughing more than $7 billion on top of the $10 billion it already owned as oil prices hit multiyear highs. The conglomerate now owns 136.4 million common shares of the oil giant, representing more than 14% of OXY's outstanding stock. Occidental shares have more than doubled in value this year, up 104%, making it the best-performing stock in the S & P 500 benchmark. The oil producer has benefited from surging crude prices this year. West Texas Intermediate crude futures traded around $102 per barrel Friday. The U.S. oil benchmark briefly topped $130 to hit a 13-year high in March amid fears of supply disruptions stemming from Russia's invasion of Ukraine. Buffett told CNBC's Becky Quick last month that he decided to start buying after reading a transcript of Occidental's Feb. 25 earnings conference call . "I read every word, and said this is exactly what I would be doing. She's [CEO Vicki Hollub] running the company the right way," Buffett told Quick. Berkshire also holds warrants to buy nearly 84 million more shares at an exercise price just $59.62 per share, just two dollars above where shares are currently trading. The warrants were obtained as part of Berkshire's 2019 deal that helped finance Occidental's purchase of Anadarko . The aggressive buying made some Buffett watchers believe there's a likelihood that Berkshire could acquire Occidental in the foreseeable future especially as Berkshire's heir apparent Greg Abel, vice-chairman of non-insurance operations, is in charge of its energy utility business. "There's maybe a 25% to 33% chance of that," said Bill Smead, chief investment officer at Smead Capital Management and a Berkshire shareholder. "How I look at that has a lot to do with Greg Abel running the company one day. He runs the largest energy utility in the United States, [Berkshire Hathaway Energy,] What would make complete sense would be one of the top oil and gas production companies in the country underneath the Berkshire umbrella as the guy, whose expertise is in energy, takes over and becomes the CEO of Berkshire Hathaway." HP Earlier this month, Berkshire also disclosed a $4.2 billion investment in the PC and printer maker HP to make it the second biggest tech holding next to Apple . Analysts believe it's a classic Buffett bet as the legend was attracted to HP's low valuation and capital returns. Some say it could also be a play on hybrid work model in a post-pandemic world as demand for PCs, printers and headsets could remain elevated for longer. "I do think it's a Warren Buffett investment," said James Shanahan, Berkshire analyst at Edward Jones. "It was a high single digit multiple stock, attractive yield, company was buying back a lot of shares. Analysts were negative on it because the business was doing very well early in the pandemic due to more people working at home and strong printer and laptop demand. But then analysts started to cool on it and it was an out of favor type name." Before Buffett's purchase, HP was trading around 8 times forward earnings, which marks a big discount to the market as the price-to-earnings ratio for the S & P 500 currently sits at about 21. Meanwhile, HP returned $1.8 billion to shareholders in the form of share repurchases and dividends in its fiscal first quarter. "He's just buying high free cash flow and high return on equity at a cheap price there," Smead said. "It's the kind of thing that's being ignored because it's not glam tech." Shares of HP have gained 6.7% since Berkshire disclosed its stake, but the stock is still down about 1% this year. Alleghany In March, Berkshire agreed to buy insurance company Alleghany for $11.6 billion , or $848.02 per share, in cash. This transaction is expected to close by the end of this year, and will mark Berkshire's biggest acquisition in six years when it bought industrial company Precision Castparts for $37 billion, including debt. "The deal makes sense for both firms ... since Alleghany's insurance-based conglomerate model is similar to Berkshire's and both firms have a long history of business interactions," said Cathy Seifert, a Berkshire analyst at CFRA Research. "For Berkshire, the transaction increases its presence in the specialty insurance and reinsurance segments at a time when market conditions remain attractive for growth," Seifert said. Alleghany owns a steel company, a toymaker and funeral services provider, along with its primary insurance business. Its current CEO Joe Brandon used to be an executive at Berkshire's General Re unit and will continue to lead Alleghany under Berkshire's ownership. What's next? Many believe Buffett's buying spree is just beginning. Edward Jones' Shanahan said he expects that Berkshire would be interested in buying the remaining 8.9% interest in Berkshire Hathaway Energy after former director Walter Scott passed away in 2021. Berkshire Hathaway Energy is a utility company Buffett purchased in 2000. Berkshire controls 91% of the company, with the remainder held by Scott's family since he died at the age of 90. A regulatory filing showed the family members agreed not to sell their shares without offering Berkshire the right to buy them first. Secondly, Berkshire will acquire another large stake in the Pilot Flying J Travel Centers in 2023, Berkshire said in its 2021 annual report . The purchase would increase Berkshire's ownership to 80% from less than 39% currently. The company started investing in the truck stop chain in 2017. With investment activity ramping up, Berkshire's buyback program could see a slowdown. The company repurchased a record $27 billion worth of its own shares last year. Partly because of the aggressive share repurchase program, Berkshire Class A shares have rallied more than 13% this year and surpassed the half-million dollar threshold for the first time. We will hear from Buffett himself at Berkshire's annual shareholder meeting on April 30. The "Woodstock for Capitalists" will meet in person for the first time in three years.

Josephine Flood | CNBC

After a six-year deal-making drought and a long stock-selling streak, Warren Buffett is back with a bang.