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This Could Be Warren Buffett's Shrewdest Big Bet Since Making Billions on Apple

Motley Fool - Sun Feb 25, 4:50AM CST

Warren Buffett raised some eyebrows with Berkshire Hathaway's sale of 10 million shares of Apple in the fourth quarter of 2023. I wouldn't read too much into the move, though.

Apple remains by far the largest holding in Berkshire's portfolio. Buffett also almost certainly remains a fan of the company. Less than one year ago, he told Berkshire shareholders that Apple was "a better business than any we own."

Investing in Apple has proven to be a smart decision for Buffett. Since he first bought shares of the tech giant in the first quarter of 2016, Apple's market cap has increased by close to $2.2 trillion.

But now Buffett is aggressively buying another stock. And it could be his shrewdest big bet since making billions of dollars on Apple.

Buffett's big zig

As far as I know, Buffett has never uttered the phrase, "Zig when others zag." However, his famous statement about being "fearful when others are greedy, and greedy when others are fearful" expresses a similar sentiment. The legendary investor is practicing what he preaches with what I'd call a pretty big zig -- buying shares of Occidental Petroleum(NYSE: OXY) hand over fist.

The conventional wisdom is that the demand for fossil fuels will decline, with renewable energy stepping up to take their place. This view could appear to make sense, with countries and corporations around the world setting ambitious goals for reducing carbon emissions. Investing in an oil stock such as Occidental might seem ill-advised in light of the changing dynamics in the energy sector.

Buffett disagrees. He told CNBC in April 2023 that more oil will be produced five years from now than is produced now -- or at least "about the same amount." The Berkshire Hathaway CEO is wagering a lot of money on the proposition that he'll be proven right.

Berkshire now owns a stake in Occidental Petroleum that's worth close to $14.9 billion. Occidental ranks as the sixth-largest position in Berkshire's portfolio (trailing behind another oil and gas producer, Chevron, by the way.)

Occidental's lottery ticket

I suspect that Buffett has never bought a lottery ticket in his life. At Berkshire Hathaway's 2016 shareholder meeting, he referred to buying lottery tickers as "mathematically unsound." But I think that his investment in Occidental comes with something like a lottery ticket, albeit one with arguably much better odds than the Powerball.

Occidental is betting heavily on direct air capture (DAC). What is DAC? In a nutshell, the technology aims to suck carbon dioxide out of the air. The CO2 is then stored underground.

In August 2023, Occidental announced the acquisition of Carbon Engineering for $1.1 billion, a leader in developing DAC technology. The company is also constructing the billion-dollar Stratos plant in the middle of oil fields in West Texas. Once Stratos is operational, it will be the biggest DAC facility ever by a factor of 100x.

Carbon capture could present a massive opportunity. ExxonMobil estimates that it could be a $4 trillion market by 2050. Occidental CEO Vicki Hollub believes DAC, in particular, could give new life to the oil and gas industry. She told National Public Radio in December 2023 that "there's no reason not to produce oil and gas forever" if her vision of DAC is achieved.

Buffett's on board

Buffett appears to be fully on board with Occidental's DAC focus. He praised Hollub in his interview with CNBC last year, saying that she is "extremely competent" and "understands oil" as well as "political realities."

His aggressive buying of Occidental stock will likely continue. Berkshire won regulatory approval in August 2022 to purchase up to 50% of the oil company; its stake currently stands at a little over 28%.

Will Buffett ever like Occidental as much as he does Apple? Probably not. However, his investment in Oxy just might be the Oracle of Omaha's best major bet since initiating a position in Apple eight years ago.

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Keith Speights has positions in Apple and Berkshire Hathaway. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.

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