“It’s difficult to make predictions, especially about the future.”
There’s a lot of controversy about this quote, in particular about who first said it and what the exact wording was. What shouldn’t be controversial in the least, though, is that it’s not true. Making predictions about the future is actually quite easy. Making predictions that prove to be accurate is what’s difficult.
I tell you all this as a preface to my own attempt to predict the future — and do so accurately. We’re rapidly approaching the start of another new year. No one knows for sure what it will hold. However, I think I have a pretty good guess on one area of interest to investors. Here’s my prediction: The following three stocks will be Warren Buffett’s top buys for Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) in 2024.
It doesn’t take Nostradamus-like powers to expect that Buffett will lead Berkshire Hathaway to invest most heavily in buying back its own shares. That’s exactly what Berkshire has done so far in 2023.
The conglomerate’s stock buybacks during the first nine months of the year totaled $7 billion. To put that amount into perspective, it’s larger than Berkshire’s entire stake in all but eight stocks.
Most companies have limited share repurchase authorizations established by their boards of directors. Berkshire’s stock buyback program is different. The company can repurchase shares any time that Buffett and Vice Chairman Charlie Munger think the share price is below Berkshire’s intrinsic value. There’s only one caveat: Berkshire must keep at least $30 billion in cash, cash equivalents, and U.S. Treasury bills.
It’s possible that Buffett and Munger could curtail Berkshire’s buybacks if the share price soars in 2024. However, if I had to bet on which stock will be the top investment for Berkshire next year, it would definitely be Berkshire itself.
I predict that Occidental Petroleum (NYSE: OXY) will rank as Buffett’s second-biggest buy for Berkshire’s portfolio in 2024. Again, this one doesn’t require extraordinary psychic abilities.
Buffett has become a huge fan of Occidental, regularly scooping up shares of the oil company over the last couple of years. Berkshire now owns a 25.8% stake in Oxy worth in the ballpark of $13.8 billion.
Why do I expect that Buffett will buy a lot more of Occidental’s shares next year? We have to go back to August 2022 to answer the question. That’s when Berkshire secured approval from the Federal Energy Regulatory Commission to acquire up to 50% of Occidental.
Granted, this doesn’t mean that Berkshire must or even will increase its stake in Occidental to reach that approved threshold. However, I doubt that Buffett and his team would have pursued the approval if they didn’t have the desire to buy considerably more of the oil company.
I have a somewhat similar rationale for putting Mitsubishi (OTC: MSBHF) in the No. 3 spot in my prediction. Berkshire owns 8.3% of the Japanese trading company, enough to make Mitsubishi its ninth-largest holding. That stake is likely to increase next year, in my view.
Buffett promised that Berkshire wouldn’t acquire any more than 9.9% of Mitsubishi. He also applied the same commitment to the other four Japanese trading companies in Berkshire’s portfolio. But it wouldn’t surprise me in the least if the Oracle of Omaha pushes Berkshire’s buying right up to the edge of that pledge.
Munger recently said that Berkshire’s initial investment in Mitsubishi and its peers “was like having God just opening a chest and just pouring money into it.” He called buying the Japanese stocks a “no-brainer” decision.
As is always the case with Buffett’s investments, valuation will matter quite a bit. However, with Mitsubishi trading at only 10.4 times trailing-12-month earnings, I suspect that we’ll see Berkshire gobble up more of the Japanese stock in 2024.
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Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
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