For decades, Berkshire Hathaway (NYSE:BRK.B) Chairman and CEO Warren Buffett adopted a conservative investment approach, favoring retail and banking stocks while giving a wide berth to more volatile sectors such as energy and tech.
Indeed, big American banks have been Warren Buffett's favorite investment for decades as he considers them a vital part of the American infrastructure, a nation he continually bets on. However, Berkshire Hathaway has always operated on Buffett’s famous mantra of buying when the market is fearful and selling when it gets greedy.
It’s little wonder, then, that the Oracle of Omaha has changed his investment ethos, and started investing in energy while trimming his banking holdings around 2020 at a time when the sector was deeply out of favor with Wall Street. Last year, he famously opened a $4.1 billion position in Chevron Inc. (NYSE:CVX), good for a nearly 2.5% stake in the giant oil company, making CVX the conglomerate’s 10th biggest equity holding.
Buffett has continued doubling down on energy, plowing huge sums into oil and gas stocks. In the current month through June 17, Berkshire Hathaway deployed $434.8 million into Occidental Petroleum (NYSE:OXY), adding to the company's already huge position. One of the largest oil and gas producers in the world, Occidental has operations in the U.S. where it has a big position in the Permian Basin, the Middle East and North Africa.
The company is engaged in midstream transport and chemical production and also owns a budding carbon capture business called Oxy Low Carbon Ventures. Occidental has paid down a huge debt it incurred after buying Anadarko in 2019. OXY now has a reasonable leverage ratio of 2.1 times debt to EBITDA, operating cash flow of $2 billion and it pays a dividend yield of 1.4%.
"Occidental is a big, liquid name and an easy way to play oil in the U.S. there is a deleveraging effect due to higher oil prices. Most of the large-cap energy companies have capital allocation priorities that benefit the equity holder. The recent pullback, energy names are starting to look attractive in terms of valuation," energy analyst Ben Cook, who manages Hennessy Energy Transition Fund HNRGX and Hennessy Midstream Investor HMSFX, has told Morning Star, noting that many energy companies are currently reducing debt, buying back stock and raising dividends.
Cook says that WTI is likely to trade in the $80-$85 range for the rest of the year and next."Most energy producers do pretty well with those prices," he says. According to Cook, the AI boom will turn investors more bullish on energy stocks. A few years ago, Wall Street and many investors predicted that renewables would soon drive down oil and natural gas consumption. However, AI has changed that, "Now there is recognition that the growth rate in electricity demand will necessitate expansion in all forms of energy," says Cook.
Back in 2020, Berkshire bought the natural gas transmission and storage assets of Dominion Energy Inc. (NYSE:D), paying $4 billion in cash for the assets, and assuming $5.7 billion in debt. Berkshire Hathaway Energy acquired 100% of Dominion Energy Transmission, Carolina Gas Transmission and Questar Pipeline as well as 50% of Iroquois Gas Transmission System.
Berkshire also landed 25% of Cove Point LNG, one of just six export-import and storage facilities for liquefied natural gas in the U.S. The purchase increased Berkshire’s footprint in the natural gas business and expanded its carrying market share to 18% of all interstate natural gas transmission in the United States up from 8% previously.
Buffett is not the only billionaire who’s doubled down on energy stocks. Occidental Petroleum, Energy Transfer LP (NYSE:ET), PG&E Corporation (NYSE:PCG) worth more than $800 million combined are now in David Tepper’s top 12 holdings. Meanwhile, Carlos Slim’s Empresarial de Capitales has invested $75.5 million into PBF Energy (NYSE:PBF).
Slim's investment company
