Warren Buffett, widely regarded as one of the greatest investors of all time, has a knack for identifying companies with strong competitive advantages that are likely to maintain those advantages over the long term. In a recent letter to shareholders, he listed several stocks from Berkshire Hathaway’s public portfolio that he expects the company to hold indefinitely. These companies have performed exceptionally well in their core businesses and have become global brands that are integral to our everyday lives.
Two of these “forever” stocks—Coca-Cola (KO) and American Express (AXP)—are prime examples. Coca-Cola, with its immense cost advantages and valuable intangible assets, has established a wide economic moat. Similarly, American Express benefits from a closed-loop system that benefits from high switching costs and network effects, reinforcing its broad economic moat. However, while these companies have been part of Berkshire’s portfolio for decades, Morningstar analysts believe that both stocks are currently overvalued relative to their fair value estimates.
But there’s one stock Buffett considers a long-term hold, and from Morningstar’s perspective, it is currently undervalued and presents an opportunity to buy: Occidental Petroleum (OXY).
Why Occidental Petroleum Is Undervalued
Occidental Petroleum is one of the world’s largest independent oil and gas producers. Berkshire Hathaway owns more than 28% of Occidental’s outstanding shares, and Buffett sees value in the company’s leadership in carbon capture initiatives, which may yield long-term benefits. Despite these promising factors, Occidental’s acquisition of Anadarko Petroleum in 2019, a deal that was quite costly, has pressured the company’s profitability and has led Morningstar to question whether Occidental has built a strong economic moat.
However, in recent years, Occidental’s management has made significant progress in reducing the company’s debt, and its financial position is much stronger now than it has been in several years. Morningstar believes that Occidental is on the verge of consistently earning its cost of capital. As a result, the stock appears to be undervalued at the moment.
Morningstar’s fair value estimate for Occidental Petroleum is $59 per share, and the stock is currently trading at a lower price, making it an attractive investment for those looking for undervalued opportunities.
Conclusion
Warren Buffett’s investment philosophy centers on identifying companies with long-term potential and holding them indefinitely. While some of his well-known holdings like Coca-Cola and American Express may be overvalued right now, Occidental Petroleum stands out as a stock that is undervalued and presents an opportunity for investors. With its strong management, improved financial health, and leadership in carbon capture, Occidental is a stock that Buffett’s Berkshire Hathaway will likely hold for years to come—and one that investors should consider buying today.
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