Warren Buffett’s Panic Sale Of Two Stocks Cost $713 Million

Famed investor Warren Buffett is known for holding S&P 500 stocks forever. But two stocks he didn’t follow his own advice on highlighted a major trend in this year’s market: 2020’s losers are among 2021’s winners so far.


Buffett unloaded Berkshire Hathaway‘s (BRKB) shares of energy firm Occidental Petroleum (OXY) and industrial United Airlines (UAL) in the harrowing second quarter of 2020. And yet, both have powered higher in 2021’s value-driven market. And not by just a little. Occidental is the S&P 500’s fourth-best stock this year, up 77%. And United is up more than 30%, putting it in the index’s top quintile.

It’s easy to see why Buffett sold. Occidental was the worst stock in the S&P 500 in 2020. Plunging oil prices in 2020 sent shares of Occidental down 77% in 2020. And United Airlines lost half its value in 2020, making it the fifth worst stock in the S&P 500.

But in the value-stock led rally of 2021, where last year’s worst stocks are soaring, both these stocks are coming alive for investors looking at the right indicators now.

The S&P 500 Turns Upside Down

Buffett is feeling the S&P 500’s major flip-flop in the wallet. The index’s worst stocks are turning into the best ones so far in 2021. The numbers are staggering.

All 50 of the worst S&P 500 stocks in 2020 are up this year so far, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. And not by a little. The worst S&P 500 stocks of 2020 are now up an average 33% in 2021 so far. That blows away the S&P 500’s 5% gain this year. And the bottom 10 S&P 500 stocks of 2020 are doing even better: up 44.8% this year. Most are energy stocks.

Some of the bounces are remarkable. Take Occidental. Shares are up more than 76.9% this year already to 30.63. That must sting Buffett a little. Shares got down to 18.30 apiece at the end of the second quarter, the period in which Buffett unloaded his nearly 19 million shares. The stock dropped in half from the start of 2020 until the end of the quarter Buffett finally sold.

But those shares are worth $233 million more now. Occidental now has an IBD Relative Strength rating of 88. That means the stock is outperforming 88% of all others.

And then there’s United Airlines, a favorite stock with millennial investors. Shares plummeted in 2020, dropping to 34.61 in the second quarter of 2020 during which Buffett unloaded his entire stake. But the airline stock is now up 30% this year. That makes the 22.1 million shares Buffett sold worth $480 million more.

Role Reversal Flips The S&P 500

There’s no denying the pandemic and following economic shutdown caused this flip in the market’s winners. Cruise line operators in the S&P 500, which Buffett doesn’t own, show the point.

Carnival (CCL) tanked 57% in 2020 to 21.66 a share as bookings dropped off. It was the second worst stock in the S&P 500 in 2020. But shares rallied 31.4% this year to 28.46, making it the 54th best S&P 500 stock this year. Carnival’s IBD Relative Strength is now 69. And then there’s Norwegian Cruise Line (NCLH). The stock plunged 57% in 2020, but this year? It’s up 21% and sports a Relative Strength of 80. Do you know if you should buy Carnival stock now? 

Don’t feel too bad for Buffett. Shares of Berkshire Hathaway are up 13.5% this year as many of his other value investments like railroads and financials pay off. But he’s not getting much comfort from his largest public holding. Apple (AAPL), which is nearly half his portfolio, is down 9% this year.

Savvy investors know it’s wise to cut losses before they swell more than 8% of your purchase price. But they also know to read what the S&P 500 is telling then. And right now, it’s saying last year’s worst are this year’s best.

The Worst S&P 500 Stocks Of 2020 Are Soaring

Company Symbol 2020 % Stock Ch. % Ch. YTD Stock Sector Relative Strength
Occidental Petroleum (OXY) -58.0% (worst stock of 2020) 76.9% Energy 88
Carnival (CCL) -57.4% 31.4% Consumer Discretionary 69
Norwegian Cruise (NCLH) -56.5% 20.8% Consumer Discretionary 80
Raytheon Technologies (RTX) -52.3% 9.8% Industrials 38
United Airlines (UAL) -50.9% 30.2% Industrials 58
Marathon Oil (MRO) -50.9% 82.9% Energy 91
ONEOK (OKE) -49.3% 34.4% Energy 74
HollyFrontier (HFC) -49.0% 58.8% Energy 77
Diamondback Energy (FANG) -47.9% 69.4% Energy 91
Schlumberger (SLB) -45.7% 32.9% Energy 71
Sources: IBD, S&P Global Market Intelligence

Follow Matt Krantz on Twitter @mattkrantz

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