Warren Buffett has left much of his company’s stock-picking to two of his deputies at
—Ted Weschler and Todd Combs. But even if Berkshire’s new stock picks in the latest quarter aren’t the direct work of the Oracle of Omaha himself, they’re still substantial, given the company’s history and record.
Berkshire (ticker: BRKA) bought new stakes in
(RH), the parent company of furniture retailer Restoration Hardware, and
(OXY). The positions weren’t huge—1.2 million shares of RH, worth about $220 million, and 7.4 million shares of Occidental, worth about $300 million. On Friday, the stocks were up 5.6% and 2.9%, respectively. Berkshire’s equity holdings are worth about $220 billion in total.
Both are controversial stocks, a far cry from the mostly plain-vanilla names in Berkshire’s portfolio such as
Bank of America
(BAC). Berkshire’s managers didn’t respond to a request for an interview.
RH has been a controversial stock for years, attracting a large short interest. As of Oct. 30, 31% of shares outstanding were borrowed by short sellers. The California company was founded in 1979 and expanded gradually into affluent markets. In 2013, Barron’s questioned the company’s valuation, given that it was trading at 37 times expected 2014 earnings even as company insiders were selling the stock.
After short sellers piled in, Restoration fought back in 2017, buying back almost half of the company’s shares that year. “As we continue to perform, we’re going to run the shorts out of the business,” said CEO Gary Friedman at the time.
This year, the stock has fluctuated wildly, losing 40% of its value between March and June after missing sales estimates, before starting an enormous comeback that has resulted in a doubling of the stock price.
RH’s next phase of growth will determine whether it can thrive in an era of growing e-commerce. As part of its rebranding two years ago, the company began selling itself as a “lifestyle” brand that delivers experiences as much as sofas.
Its new suburban Minneapolis store has 60,000 square feet of indoor and outdoor space, a wine bar, and a restaurant. “It’s a space that blurs the lines between residential and retail, indoors and outdoors, home and hospitality—an experience that activates all of the senses and can’t be replicated online,” Friedman said at the September opening.
It’s no secret that Buffett likes Occidental, given his role in the company’s purchase of oil explorer Anadarko Petroleum earlier this year. With Occidental competing with
(CVX) to buy Anadarko, Berkshire bought $10 billion of Occidental preferred stock paying an 8% dividend, and received warrants to buy up to 80 million shares of Occidental stock for $62.50 a share.
Its decision to add more equity exposure in the latest quarter indicates that Berkshire remains committed to the company even as Wall Street has backed away. Occidental shares are trading at under $40—down 35% since first announcing its Anadarko bid—as investors fret about its debt load, and about energy stocks in general.
Write to Avi Salzman at [email protected]