For decades, the chairman and CEO of Berkshire Hathaway (NYSE: BRK.B), Warren Buffett has taken a conservative approach to investing, favoring retail and banking stocks while largely avoiding more volatile sectors such as energy and technology.
Indeed, major American banks have been Warren Buffett’s favorite investment for decades, considering them to be a vital part of American infrastructure, a nation in which he continues to bet. However, Berkshire Hathaway has always operated under Buffett’s famous maxim of buying when the market is fearful and selling when greed arises.
It is therefore not surprising that the Oracle of Omaha changed its investment ethos and began investing in energy while reducing its stakes in banks around 2020, a time when the sector was profoundly neglected by Wall Street. Last year, he remarkably opened a $4.1 billion position in Chevron Inc. (NYSE: CVX), representing a stake of almost 2.5%. in the oil giant, making it the 10th largest equity stake in the conglomerate.
Buffett continued to double down on his investments in energy, pumping considerable sums into oil and gas stocks. In the current month through June 17, Berkshire Hathaway invested $434.8 million in Occidental Petroleum (NYSE: OXY), further strengthening the company’s already significant position. One of the largest oil and gas producers in the world, Occidental has operations in the United States where it has a significant position in the Permian Basin, the Middle East and North Africa.
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The company is engaged in intermediate transportation and chemical production, and also has a nascent carbon capture business called Oxy Low Carbon Ventures. Occidental paid off significant debt incurred after purchasing Anadarko in 2019. OXY now has a reasonable debt-to-EBITDA ratio of 2.1 times, a operating cash flow of $2 billion and pays a dividend yield of 1.4%.
“Occidental is a large, liquid name and an easy way to gain exposure to oil in the United States. There is a deleveraging effect from rising oil prices. Most large energy companies have shareholder-beneficial capital allocation priorities With the recent correction, names in the energy sector are starting to come through. “attractive in terms of valuation,” energy analyst Ben Cook, who manages the Hennessy Energy Transition and Hennessy Midstream Investor funds, told Morning Star, noting that many companies Energy is currently reducing debt, buying back shares and increasing dividends.
Cook estimates that WTI should be in the $80-$85 range for the rest of the year and beyond. “Most energy producers are doing pretty well with these prices,” he says. According to Cook, the artificial intelligence boom will make investors more optimistic about energy stocks. A few years ago, Wall Street and many investors predicted that renewable energy would quickly reduce the consumption of oil and natural gas. However, AI has changed the game, “Now there is recognition that the rate of growth in electricity demand will require expansion in all forms of energy,” says Cook.
In 2020, Berkshire acquired the natural gas transmission and storage assets of Dominion Energy Inc. (NYSE:D), paying $4 billion in cash for assets and taking on $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 acquired 25% of Cove Point LNG, one of six liquefied natural gas export-import and storage facilities in the United States. The purchase strengthened Berkshire’s presence in the natural gas sector and increased its market share to 18% of all interstate natural gas transmission in the United States, up from 8% previously. Previously.
Buffett is not the only billionaire increasing his exposure to energy stocks. Occidental Petroleum, Energy Transfer LP (NYSE:ET), PG&E Corporation (NYSE: PCG) worth more than $800 million combined are now among David Tepper’s top 12 holdings. Meanwhile, Carlos Slim’s Empresarial de Capitales invested $75.5 million in PBF Energy (NYSE : PBF).
Slim’s investment firm has now pumped $150 million into the stock since January. PBF is one of the largest independent energy refineries in the United States with six refineries and a network of pipelines and storage. Last year, PBF set out to repair its balance sheet by repaying its debts and covering its environmental liabilities.
These efforts appear to be paying off, with the company currently having $1.4 billion in cash versus $1.2 billion in debt. According to the company’s chief financial officer, Karen Davis, the improved cash position allows the company to increase shareholder returns through share buybacks and dividends. PBF shares currently offer a dividend yield of 2.3%.
By Alex Kimani for Oilprice.com
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