The Oracle of Omaha, Warren Buffett, has made his mark with astute investment choices, and his portfolio at Berkshire Hathaway (NYSE: BRK.A) reveals a significant commitment to the energy sector.
Warren Buffett’s portfolio at Berkshire Hathaway includes substantial holdings in Chevron (NYSE: CVX) and Occidental Petroleum Corporation (NYSE: OXY), making up 9.5% of the $383 billion portfolio, according to Stockcircle.
The pandemic led to significant cutbacks in investments by most drilling, exploration, and energy infrastructure companies. This, combined with Russia’s invasion of Ukraine, created a supply-demand imbalance, driving oil and natural gas prices higher.
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Both Chevron and Occidental Petroleum are integrated operators, meaning they have diversified operations that include midstream assets like pipelines and downstream assets such as refineries and chemical plants.
This diversification helps them manage risks and stabilize earnings even when energy commodity prices are volatile. This focus on energy stocks underscores Buffett’s belief in the enduring importance of fossil fuels, even as the world increasingly turns to renewable energy sources.
Chevron Corporation (NYSE: CVX) stock
Chevron stands out in the oil and gas industry, generating most of its earnings from upstream operations. With a holding value of $19.9 billion, Buffett sees a potential in Chevron’s future. The company is one of the largest producers of oil and gas in the Permian Basin, the most prolific oil field in the United States.
Chevron’s strong balance sheet and disciplined capital spending provide a solid buffer against market volatility. Its integrated operations, including downstream activities, help stabilize earnings during periods of low oil prices. Currently, CVX ranks as Berkshire’s fifth-largest stock holding.
Chevron’s financial metrics are compelling with a market cap of $298.51 billion, an enterprise value of $314.06 billion, and 1.84 billion shares outstanding according to stock analysis.
The trailing PE ratio is 14.90, and the forward PE is 12.28, with a PEG ratio of 4.51. Chevron offers a quarterly dividend of $1.63 per share, translating to a yield of 4.2%.
Analysts are optimistic about Chevron’s future, predicting revenue growth of 7.3% to $201.39 billion in fiscal 2024, with an average 12-month price target of $183.08, a high estimate of $206, and a low of $160.
Occidental Petroleum Corporation (NYSE: OXY) stock
Occidental Petroleum has recently drawn significant interest from Buffett, with OXY being the sixth-largest holding in Berkshire’s portfolio. Occidental Petroleum, for instance, took on considerable debt after acquiring Anadarko for $55 billion in 2019.
However, through disciplined financial management and high oil prices, the company has significantly reduced its debt, enhancing its appeal as an investment.
Occidental Petroleum has actively reduced its debt, which fell from $47.6 billion in Q3 2019 to $18.5 billion in Q1 2024.
This reduction, along with a strong presence in the upstream sector, makes Occidental a compelling investment.
Key financial metrics for Occidental Petroleum include a market cap of $56.51 billion, an enterprise value of $76.07 billion, and 886.64 million shares outstanding.
The trailing PE ratio is 17.46, and the forward PE ratio is 15.59, with a PEG ratio of 2.63. The company has a historically low payout ratio of 3.1%, indicating high reinvestment in business growth.
Analysts predict sales to reach $28.95 billion in fiscal 2024, with a potential jump to $32.15 billion in fiscal 2025. The average 12-month price target for Occidental Petroleum is $72, with estimates ranging from $63 to $81.
With the U.S. experiencing a surge in oil and natural gas production, particularly in the Permian Basin, the International Energy Agency (IEA) projects record output through 2030. Coupled with rising crude oil and natural gas prices, this presents a strategic opportunity for investors.
Warren Buffett’s significant investments in Chevron and Occidental Petroleum highlight his confidence in the enduring value of these energy giants.
Both companies have demonstrated resilience and strategic foresight in navigating the complex energy landscape.
With robust financial metrics and favorable analyst predictions, Chevron and Occidental Petroleum present compelling opportunities for investors looking to add solid energy stocks to their portfolios.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
