Only two days left before millions of Americans go to the polls. Many others across the country have already voted. The outcome of the election will almost certainly cause some stocks to rise and others to fall.
Warren Buffett probably won’t worry about the stock price Berkshire Hathaway‘s portfolio will perform no matter who wins. But at least some of its stocks could be big winners if former President Donald Trump secures a second term and Republicans gain control of Congress. I predict two Buffett stocks in particular will rise if Trump and the Republican Party make a sweep this week.
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Two of the six largest positions in Berkshire’s portfolio are oil stocks that are poised for big gains now that Republicans are in power. Chevron(NYSE: CVX) It is the conglomerate’s fifth-largest holding company, with a stake currently worth about $17.7 billion. Western petroleum(NYSE:OXY) follows Chevron in sixth place, with Berkshire owning approximately $13.2 billion worth of stock in the oil and gas producer, measured by fair value.
Buffett took a position in Chevron in the fourth quarter of 2020. The stock had tumbled earlier this year as pandemic shutdowns around the world dramatically reduced demand for oil.
Although Berkshire has a significant stake in Chevron, it owns fewer shares than a year ago. Buffett sold approximately 3.11 million shares in the first quarter of 2024 and another 4.37 million shares in the second quarter.
On the other hand, the legendary investor has continued to aggressively buy shares of Occidental Petroleum. Buffett opened a new position in Oxy in the first quarter of 2022 and has added to it almost every quarter since. Berkshire now owns 27.3% of Occidental and received regulatory approval in 2022 to acquire up to 50% of the company.
Why are shares of Chevron and Occidental Petroleum likely to benefit if Trump and the Republican Party win the upcoming election? Two Republican policies could particularly affect them.
First, Trump has promised to increase domestic drilling for oil and gas. Exactly how much his policies will help Chevron and Occidental remains to be seen. The US is already producing a record number of barrels of oil per day.
But oil executives would undoubtedly love the deregulation that a Republican move would likely usher in. Investors likely will too, as shares of Chevron and Occidental rise on increased optimism about the oil and gas industry.
Second, Trump wants to reduce corporate tax rates from 21% to 15%. If he is able to make this change (which would be much more likely now that his fellow Republicans control the Senate and House of Representatives), it could boost Chevron and Occidental’s bottom line.
Decision Desk HQ, a website that publishes US election results, estimated on Friday evening that Trump had a 54% chance of winning the presidential race. It estimated the chances of Republicans winning the Senate at 74% and the House at 53%. While these percentages may seem good if a Republican move is looming, the site considers the tight margins in the presidential and House of Representatives elections to be “essentially a toss-up.” And simple probability calculations indicate that the odds of the party winning the presidency and both chambers of Congress are only about 1 in 5, based on Decision Desk HQ’s modeling.
Also keep in mind that Decision Desk’s projections are based on polls that may be wrong. The fact that many state polls have very similar margins could indicate that some pollsters are adjusting their results to ensure they are not outliers. This process, also called “herding,” can create the illusion that the election is closer than it actually is. Statistically speaking, there should be more variation in the polls than we see now.
It is therefore possible that Vice President Kamala Harris can defeat Trump and that Democrats control at least one chamber of Congress. How would Chevron and Occidental stock perform in this scenario? I don’t expect a big jump. On the other hand, I don’t think a major sell-off is likely either.
Regardless of which party is in power in Washington DC, there will still be significant demand for oil and gas. Both Chevron and Occidental are also investing in carbon capture and storage technology. If they succeed, these Buffett stocks will almost certainly be big winners in the long run.
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Keith Speights has positions in Berkshire Hathaway and Chevron. The Motley Fool has and recommends positions in Berkshire Hathaway and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Prediction: These Two Warren Buffett Stocks Will Jump If Donald Trump and the GOP Sweep in November Originally published by The Motley Fool
