Warren Buffett Cut His Apple Stake. Here’s What He Bought Instead.

It finally happened. This year Warren Buffett and Berkshire Hathaway (NYSE: BRK.B) (NYSE: BRK.A) began selling significant portions of his sample Apple interest. According to its latest 13-F filing with the Securities and Exchange Commission (SEC), Berkshire Hathaway cut its Apple investment by about half in the second quarter. That stake was worth about $80 billion based on Apple’s current share price.

Berkshire Hathaway now has an estimated $300 billion in cash on its balance sheet, a figure that has been growing every quarter for some time.

Much of the proceeds from that Apple stock sale are now tied up in cash and U.S. Treasuries as Buffett waits for the next big opportunity that appeals to him. The conglomerate did buy a few shares in the second quarter, though. Here are two interesting stocks Berkshire Hathaway bought this summer that you should consider for your portfolio.

Occidental Petroleum: Betting on US Oil and Natural Gas

One of Buffett’s favorite companies – and a stock he seems to be buying more of every quarter at the moment – is Occidental petroleum (NYSE: OXY)It is one of the largest U.S. oil and natural gas companies and last quarter reported the highest production in four years (measured in barrels of oil equivalent per day) from its various operations.

This led to $1.3 billion in free cash flow generation in the quarter. To further reinvest in growth, the company just acquired CrownRock for $12 billion, a deal that added new acreage for production in the Midland Basin. The new assets will help boost free cash flow generation and should help Occidental Petroleum consolidate its position in the United States.

Buffett now owns an estimated 27% of Occidental Petroleum shares, a big bet on continued U.S. demand for natural gas. This could prove to be a particularly prescient move as demand for electricity continues to grow from the artificial intelligence (AI) and cloud computing markets. Right now, however, natural gas prices are falling. While that will be a problem for Occidental Petroleum in the short term (and helps explain why the stock is down 21% from its 52-week high), it could present a buying opportunity for long-term investors.

Occidental Petroleum is currently trading at a price-to-earnings (P/E) ratio of 13.4, even with low natural gas prices. If, like Buffett, you believe in the sustainability of natural gas demand, now might be a good time to add Occidental Petroleum stock to your portfolio.

Ulta Beauty: A Budget Beauty Retailer?

Ulta Beauty (NASDAQ: ULTA) is a new position for Buffett. Berkshire Hathaway added the stock to its portfolio in the second quarter after shares fell more than 40% from their recent highs.

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Ulta Beauty is struggling as it rebounds from a beauty boom tied to the COVID-19 pandemic. Comparable sales fell 1.2% in the second quarter, compared with 8% growth in the same period last year. Customers are spending less on beauty products and visiting Ulta stores less often. And with the chain operating nearly 1,500 stores, investors are likely concerned that the market is becoming saturated.

Looking at the long term, it’s clear that Ulta Beauty is adept at growing its profits. Operating income has increased 295% over the past 10 years, while the number of outstanding shares has decreased 26.8%. The company has been consistently buying back its own shares to reduce its outstanding shares, which is good news for remaining shareholders.

Buffett and his team at Berkshire Hathaway likely believe that Ulta Beauty is a quality retailer that is in trouble in the short term. The company is currently trading at a low P/E of 14.4 and is buying back a lot of shares. For those who have faith in the Ulta Beauty brand, this might be a good time to follow Buffett and take a position in the company.

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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Ulta Beauty. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.

Warren Buffett Trimmed His Apple Stock. Here’s What He Bought Instead was originally published by The Motley Fool