Berkshire's Occidental stake shows 'good and fair value' Warren Buffett is comfortable with: Analyst

Portfolio Wealth Advisors President and CIO Lee Munson joins Yahoo Finance Live to discuss Warren Buffett's comments on a potential purchase of Occidental, interest in Apple, and outlook for streaming platforms.

Video transcript

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- Warren Buffett is putting an end to speculation that Berkshire Hathaway might buy Occidental. The CEO saying, quote, "We are not going to be making an offer for control of Occidental." You can see, shares are almost 2%-- almost down 2%, I should say. Now 3% here on the news.

For more, we're joined by Lee Munson, Portfolio Wealth Advisors President and CIO. Lee, good to talk to you today. This is a stock that was one of the best performing in the S&P 500 last year, it is down already. Are you still bullish on Occidental, even after what we heard from Warren Buffett over the weekend?

LEE MUNSON: Yeah, let's think about what we know about Warren Buffett, OK? He's got about a quarter of the shares, he's authorized to buy half of it, and he's got warrants at 59 bucks, right, where he can buy a ton of it. He's got some preferred stock that he's making 8% yield. I mean, in this market, when we're expecting-- I mean, earnings to be a little flat, maybe a mild recession, why is he in such a big hurry?

But here's the thing, what we do know is where he'd like to buy the stock. And it's around that $59 where he has the warrants. So why is he going to go in and say, hey, I want to pay a big, what, 10, 20, 30% premium when he can sit around all year and accumulate the stock. So I don't necessarily look at this as a negative, I don't think it's a-- I think it just tells you that right around here is a good and fair value that he's comfortable with. And I think that that's all there is really is to read into it.

And he loves the CEO. He loves how that company is run. And that's what we're supposed to gleam from his comments, not that there's going to be some easy money. As if we go and listen on Saturday for stock picks, right. That's not what the point of the Berkshire Annual Meeting is. It's to try to get some sense of wisdom from these two old guys.

- Yeah, Lee, that's interesting because when you take a look at this share reaction today, you'd think that maybe it brought some fear out there among shareholders, just in terms of what exactly the future looks like for Occidental. But it sounds, like what you're saying, is that some of these people that have possibly been chasing Buffett here buying in on Occidental Petroleum, they shouldn't necessarily be discouraged by this. Rather, they should be encouraged by how well positioned he thinks the company currently is, right?

LEE MUNSON: Yeah, and also that he likes the valuation, right? I mean, if you're a value investor, you don't want the stock to jump up all at first, you want to be able to accumulate it at a reasonable price. Remember, this is a guy who has about 20 to 25% of the company right now. And he has-- I mean, he might buy up to half of it. And I know he says, well, we wouldn't know what to do with it right now, right. We don't want to take over the whole firm.

He didn't say he doesn't want to accumulate more. But he did make it very clear, it's hard for him to want to buy the whole company when he's going to be giving up a bunch of yield. So I think you just have to think about what his psychology is, right. He's not here to give you a hot stock pick. He's not here to make you rich on some sort of buyout rumor. What he's here to do is use accumulating companies that he thinks that you can compound in the future and make a lot of money.

And when he says the words, we've got all these warrants around $59, and he says, oh, we we're comforted. We like that we have all these warrants. We like that we can buy it at roughly the price it's trading at today, right. So if he likes $59, that means we should like $59 and consider accumulating. If you're looking to buy an individual stock in the energy arena, I would agree and say that this is probably one of your better bets.

- Yeah, Lee, you could argue that Warren Buffett, sort of a calming voice over the weekends in light of the choppiness that we saw last week, especially with the banks. Apple, specifically, he highlighted that we know he's added to those holdings recently, but he said, look, this is a better company than any we own. In fact, he said I made some mistakes a few years ago when I sold shares when I shouldn't have. I'm curious what stood out to you in some of those comments that we got from him on that space because you talk about him value investing. I mean, Apple has been steady value for him.

LEE MUNSON: Well, it has. And I think it should suggest that-- when he says, I don't know what interest rates are going to be in 5 or 10 years, I don't know. I think there's another company-- I think it might have been Ford Motor Company or Tesla or something like that-- where he says, I don't know where it's going to be in 5 or 10 years but he said, I believe I know where Apple is going to be 5 to 10 years from now.

And what he means when he says that, the way I interpret that, because I've been reading his annual shareholder letter forever, I've been watching this stuff since I was a little kid, he believes that Apple will still be able to compound at a reasonable rate of return. In fact, he thinks Apple is his best compounder right now, right.

And so when he thinks that he has that future site, I think that what it means is that you can tell me that we don't know where Apple, the share price is going to be over the next three months, but he definitely is long on this stock. He thinks it's the one best place where he wants to keep his money, that's why it's such a large position. And he thinks it's going to continue to compound.

Now the valuation is a different thing. We've seen Warren Buffett, quarter to quarter, year to year, chop certain positions just based on valuation, but he's not saying that right now. And because Apple is the largest component of the S&P 500, I think that bodes well for the broader cap weight index, which everybody wants to hate on right now. I think the issue is that everybody hates that they don't own only five companies of the S&P 500. But I don't think it's time to necessarily ditch out on the S&P because of that.

- Lee, what about some of his comments? I mean, Apple clearly has worked out for Buffett. What did you make of what he had to say about streaming? Because he was a little bit more-- much more critical of what we have seen in that space, yet he's sticking with his investment, has stuck with his investment in Paramount.

LEE MUNSON: The problem with value investors, we all stick with some companies that we should sell, and we sort of kick ourselves in the head. Even 92-year-old Buffett will do that too. Here's what we need to know, Buffett is very clear, there's not going to be a bunch of new eyeballs coming to streaming, right. We're not going to have a billion new people coming to streaming.

And he told this story about the gas station that he owned when he was 20. You know, like when we were teenagers and owned gas stations and things like that. And he said, his gas station out in Omaha, his profit was determined by his larger competitor, right. And he's saying streaming is the same way. You have big players and none of them want to quit.

And you can tell Buffett's frustrated with it. He wants to shake out some of these weak players, and they're not being shaken out. And so I understand that pain, I own Disney, right, Disney Plus, Hulu. Streaming is a big reason why I own that Disney stock. He owns Paramount because of streaming.

But as long as we have these major players that are-- basically what's happening is every competitor is keeping the ability to profit from everybody else. So I think you have to stick with the top two or three streamers and hope that we eventually become profitable. But you'll notice he's not selling Paramount. He's not. He just doesn't like the prospects because of that dividend cut.

- Yeah, just hope that they become profitable, that's a big one there, Lee. Lee Munson, Portfolio Wealth Advisors President and CEO. It's good to talk to you today.

LEE MUNSON: Thank you.