FRI, JUL 28, 2023
'Classic bargain hunting' as Buffett sticks with unfashionable sector
Berkshire Hathaway's continuing purchases of Occidental Petroleum shares and its $3.3 billion investment in an East Coast liquefied natural gas export terminal are "classic bargain-hunting," as Warren Buffett and Charlie Munger take advantage of low prices amid "[p]ersistent concerns over the sector’s environmental, social and governance performance, poor pre-pandemic returns and the risk of declining demand for fossil fuels in the decades ahead [that] have soured many investors on the industry."
That's the main thesis of a Bloomberg analysis this week by Kevin Crowley and Max Reyes.
It notes that stocks in the energy sector are trading at the lowest price-to-earnings valuations in the S&P 500 stock index, even as they also generate the most cash flow per share.
Occidental Petroleum enhanced oil recovery project in Hobbs, NM on May 3, 2017. REUTERS/Ernest Scheyder/File Photo
Smead Capital Management CEO Cole Smead is quoted as saying, "People are missing the economics that Buffett and Munger are looking at."
"The returns on capital in coal, oil and gas are off the charts compared with other sectors. And with ESG, you can buy them cheaper than you otherwise would."
Smead says he loves ESG because it is putting downward pressure on the price of oil and gas stocks, and "I'm sure Buffett and Munger love ESG as well."
That doesn't mean, though, that the two men are opposed to reducing the world's reliance on fossil fuels.
Berkshire Hathaway Energy has made substantial investments in renewable energy, especially in Iowa where there are generous tax subsidies for wind-generated power, with Buffett saying at this year's annual meeting that "our record in wind and solar has not been topped by any utility in the United States."
And he has called on the U.S. government to "reorient the resources" of the country with a "wartime"-style coordinated strategy to achieve energy transformation, even as he worried that kind of effort may not be possible under the nation's current democratic system.
VIDEO: Warren Buffett argues at the 2023 Berkshire Hathaway annual shareholders meeting that the U.S. needs to “reorient the resources” of the country to achieve energy transformation, just as it did to win World War II.
At the same time, however, Buffett thinks the national debate over climate change has become too heated.
"We think, frankly, some of the things said are ridiculous. And on both sides. In both extremes...
"The politicization of positions on something that’s enormously important in terms of energy just lends itself to demagogues, and fundraisers, and advisory organizations, and everybody in sight. And we will make rational decisions. And we do not think it’s un-American to be producing oil."
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HIGHLIGHTS FROM THE ARCHIVE
Why Buffett and Munger reject traditional asset allocation strategies (2005)
BERKSHIRE'S TOP U.S. STOCK HOLDINGS - Jul. 28, 2023
Berkshire's top holdings of disclosed publicly-traded stocks in the U.S., Japan, and Hong Kong, by market value, based on today's closing prices.
Holdings are as of March 31, 2023 as reported in Berkshire Hathaway’s 13F filing on May 15, 2023, except for:
The full list of holdings and current market values is available from CNBC.com's Berkshire Hathaway Portfolio Tracker.
Please send any questions or comments about the newsletter to me at email@example.com. (Sorry, but we don't forward questions or comments to Buffett himself.)
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Also, Buffett's annual letters to shareholders are highly-recommended reading. There are collected here on Berkshire's website.
-- Alex Crippen, Editor, Warren Buffett Watch
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