Analysis: APC BRK.A BRK.B OXY CVX HON

The Anadarko Petroleum (APC) saga may be nearing its conclusion.

In news on Tuesday, Berkshire Hathaway (BRK.A) (BRK.B) announced that it has agreed to fund Occidental Petroleum (OXY) a total of $10 billion in connection with Occidental's pursuit of acquiring Anadarko in a deal that values APC at $76.00 per share. Of course, Berkshire's investment is contingent upon Occidental actually completing the acquisition, a point on which we reminded you of on yesterday's announcement that Anadarko had resumed negotiations with Occidental despite previously entering a merger agreement with Chevron (CVX) that valued APC at $65 per share. Although we have an appreciation for the size and scale of Chevron, the large difference in acquisition price is enough for us to think that Anadarko management is obligated to side with Occidental's offer. Money talks.

In light of this news, we must now adjust the stance we provided on APC in our Alert here. Even though Chevron has the wherewithal to engage in a bidding war with Occidental and their previous commentary was quite bullish on the deal, we now find it unlikely that Chevron will come back and offer a higher price for Anadarko. Berkshire Hathaway is almost like an 800-pound gorilla in terms of financing power, and the tie up between them and Occidental shows how committed Occidental CEO Vicki Hollub is about getting this deal done. We expect Chevron to walk away and collect its $1 billion breakup fee once Anadarko and Occidental formally agree on a deal.

Accordingly, our new plan is to exit our APC position -- which turned into a victory with a terrific, double-digit gain thanks to our patience, perseverance, refusal to give up on value, plus a little more patience that kept us in for the higher Occidental offer -- when our restrictions allow us to do so (Jim discussed APC on television Tuesday morning, thus restricting us from trading at least until next Monday. More on our restrictions can be found here.) Therefore, we are downgrading APC to a Four, meaning this is a stock we wish to unload as soon as our trading restrictions allow.

Honeywell

In other news, Honeywell (HON) announced through a filing that its board of directors has authorized the company to repurchase up to $10 billion worth of stock, including the approximate $2.3 billion of remaining availability under the previously announced $8 billion authorization. The company had already been buying back a steady amount of its own stock, repurchasing $750 million worth in the first quarter of 2019, and this news provides management with greater leeway to be opportunistic.

Honeywell continues to check off all the boxes of an exceptionally run company, and we believe HON is the highest quality industrial on the market. We have been waiting for all of Honeywell's peers to report their quarterly results before upwardly adjusted our HON price target, and we now plan to do so in the coming days.

Though steep in size, we also note that the amount of this buyback will have little effect on the company's pristine balance sheet positioning. A signature merger and acquisition deal from CEO Darius Adamczyk has been the hope of investors because the right deal at a good price would be a large catalyst for the stock, but we have no problems waiting on Adamczyk's timeline because he presciently optimized the company's portfolio away from residential housing and autos in 2018. Plus, the recent string of impressive quarterly results invokes the old saying of, "if it ain't broke, don't fix it."

The next time we expect to hear from management will be at the May 14 Investor Conference and we greatly look forward to this event.