Warren Buffett is sitting on a stack of cash, leaving investors wondering where he’ll deploy his capital to next. Over the previous quarter, Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) sold $5 billion worth of stock, totaling $44 billion over the past four quarters. He’s now holding $157 billion in cash, collecting interest, and waiting for the right moment in a troubled economy.
In an article detailing the move, one professor of applied economics said, “This is classic Buffett. He loves to fish in troubled waters.”
The question, of course, is where the Oracle of Omaha will begin fishing first. Past investments point to a few possibilities, and investors should look to these stocks if they want to front-run Warren Buffett’s possible next move.
Occidental Petroleum (OXY)
Occidental Petroleum is an easy pick for Warren Buffett’s cash (NYSE:OXY). Part of his stock sale included OXY competitor Chevron (NYSE:CVX). Specifically, he sold over $2 billion of his total stake in the legacy oil company.
Over the same period, though, Buffett kept buying OXY shares. Now, he owns more than 25% of the relatively young oil upstart. That preference for one over the other points to a safe bet when figuring out how Buffett will deploy his cash moving forward.
OXY’s been performing well this year, and its most recent earnings point to continued strength. In effect, OXY combines Buffett’s favorite stock quality – value – with greater growth potential than companies like Chevron. Last quarter, the company generated $1.7 billion in free cash flow while continuing a $3 billion buyback program. At the same time, the company secured a partnership to begin operations at the world’s Direct Air Capture plant. The move toward long-term sustainability is one bigger firms haven’t yet embraced.
Sirius XM (SIRI)
Sirius XM (NASDAQ:SIRI) is another safe Buffett bet, considering he just announced a $43.8 million stake in the satellite radio company.
The move might seem strange, considering the company’s recent struggles. But the firm’s financials remain solid, and, with Buffett offering advice, the company could rebound and create a windfall for Warren.
The company posted a 47% year over year (YOY) net income jump in the third quarter. At the same time, it returned $555 million to shareholders since January. SIRI’s increased emphasis on offering something other media firms can’t – mainly sports – sets it apart and ensures an ongoing customer base.
However, a possible merger with Liberty Media (NASDAQ:LXSMA) creates a unique arbitrage opportunity. While nothing is yet concrete, SIRI’s bottom-barrel pricing could jump substantially if terms value shares higher. That might be Buffett’s play in this case, and he’s biding his time until the deal materializes. Or, equally likely, he just likes the stock.
Kraft Heinz (KHC)
Warren Buffett bemoaned in 2019 that he overpaid for his Kraft Heinz (NASDAQ:KHC) stake. But since then, the stock might be more appealing and attract a portion of Buffett’s ballooning cash balance.
Shares trade close to where they did in 2019, but the company’s position is materially stronger with improved prospects. CEO Miguel Patricio, who took over when Buffett revealed his mistake, is rapidly turning the food giant around.
Since then, Patricio sold off losing assets while increasing marketing spend for the company’s best sellers. Notably, the company’s recent earnings showed substantial margin growth, critical for consumer defensive stocks like KHC. They can’t increase revenue simply by juicing pricing, since many substitutes exist for consumers. So, creative cost management is paramount. And, with the gross profit margin improving by more than 5%, Patricio is showing he has put KHC back on track.
Patricio’s position will be replaced by incoming CEO Carlos Abrams-Rivera in 2024. While that introduces a degree of uncertainty and risk, KHC’s recent performance and Patricio’s turnaround make this a solid play for Buffett’s cash.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
