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Reassessing Occidental ETFs as Buffett Denies Full Control

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Warren Buffett, the CEO of Berkshire Hathaway (BRK-A), recently commented at the company's annual shareholder meeting that they have no plans to take complete control of Occidental Petroleum Corp (OXY - Free Report) . Shares of Occidental dropped right after the comment, but later recovered their losses. Buffett stated, "There's speculation about us buying control, we're not going to buy control. We wouldn't know what to do with it."

Berkshire Hathaway's Current Stake in Occidental Petroleum

Berkshire Hathaway had been steadily increasing its stake in Occidental Petroleum since receiving regulatory approval to purchase up to a 50% stake in August last year. This move had fueled speculation that the 92-year-old investor could acquire the whole company. Buffett’s current stake stands at 23.5%, making them the largest shareholder in the Houston-based energy producer.

Occidental Begins Buying Back Berkshire's Preferred Stock

If this was not enough, Occidental Petroleum Corp. started buying back Berkshire Hathaway Inc.'s $10 billion of preferred stock, four years after Warren Buffett's firm made the investment during the oil producer's takeover of Anadarko Petroleum Corp. Occidental issued "mandatory redemption notifications" for $474 million of preferred stock at a price of 110% of liquidation value plus dividends in March, according to Berkshire's quarterly report. Berkshire still has about $9.5 billion of preferred stock in the Houston-based company.

Should You Dump Occidental ETFs?

With Warren Buffett's statement that Berkshire Hathaway has no plans to take full control of Occidental Petroleum, investors may be questioning their positions in Occidental. Although Buffett's comments led to a temporary drop in the company’s share prices, they have since recovered.

Berkshire's Continued Interest in Occidental

Despite Buffett's dismissal of taking full control, Berkshire remains the largest shareholder of Occidental, holding a 24% stake in the company's common stock. Buffett mentioned at the shareholder meeting that Berkshire is willing to buy more Occidental common stock, but ruled out buying the oil producer outright.

Occidental's Capital Structure and Debt Repayment

Occidental had signaled its intent to begin redeeming Berkshire's preferred stock after record earnings in 2022 helped it repay billions of dollars of debt. The preferred stock carries an 8% annual dividend, making it an expensive part of Occidental's capital structure.

Lucrative Value Score

Occidental has a Top Value Score of ‘A’ and a Growth Score of ‘B.’ The stock hails from an industry that boasts an upbeat Zacks Industry Rank of Top 40%.  Return-on-equity of OXY is 52.7% versus 32.5% owned by the industry. On the other hand, the company has huge debt burden. Thus, buying back of preferred stock for the debt management seems a reasonable move.

Bottom Line

In conclusion, while Warren Buffett's reduced ambitions for control over Occidental Petroleum Corp may have caused some uncertainty in the market, there is no immediate need to dump Occidental Shares. Those who do not have strong stomach for risks may tap ETFs like Occidental-heavy ETFs like First Trust Nasdaq Oil & Gas ETF (FTXN - Free Report) , Invesco S&P 500 Equal Weight Energy ETF and First Trust Natural Gas ETF (FCG - Free Report) . The ETF approach lessens the company-specific risks.

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