Warren Buffetts Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) has a huge portfolio of stocks, but two companies on the list that have been in the news lately are Chevron (NYSE: CVX) And Occidental petroleum (NYSE: OXY)In the conglomerate’s latest 13F filing on May 15, Buffett revealed that he sold about 3.1 million shares of Chevron stock in the first quarter and added about 4.3 million shares to his Oxy position.
Should You Follow Buffett’s Lead?
Buffett still owns a lot of Chevron
Buffett didn’t exit his position in Chevron (at the time of the filing, he still owned over $19 billion in Chevron stock), so it’s not exactly the case that he dumped the stock to buy Oxy. But he did sell a significant portion of Chevron and notably increased his stake in Oxy (which was worth about $16 billion at the time of the filing). So it appears that he used the money he raised from the sale of Chevron to fund the purchase of additional Oxy shares. That said, investors in Chevron shouldn’t dump it from their portfolios based on this shift.
In fact, especially if you’re a conservative income investor, you probably want to hold on to Chevron. It has a rock-solid balance sheet and a broadly diversified business, both geographically and within the energy sector. It has proven time and time again that it knows how to navigate every phase of the economic cycle in the highly volatile energy sector, where oil and natural gas prices can make dramatic and rapid price movements. The clearest evidence of this is that Chevron has increased its dividend every year for 37 consecutive years.
Equally important for those considering a new purchase now is that Chevron’s dividend yield is currently an attractive 4.1%. For comparison, at recent stock prices, Occidental Petroleum’s yield is just 1.4%. If you’re looking to maximize the income your portfolio generates, you clearly don’t want to make the change Buffett just made. But if income isn’t your biggest concern, the Oracle of Omaha’s portfolio shift is worth considering.
Buffett bought more Occidental Petroleum
Warren Buffett’s really big move with Occidental Petroleum came back in 2019 when he invested $10 billion to help directly finance the purchase of Anadarko Petroleum. Somewhat ironically in retrospect, Oxy needed that extra cash to outbid Chevron. Things went south for Occidental shortly thereafter, as the economic shutdowns that countries around the world implemented in 2020 to slow the spread of the coronavirus resulted in a sharp drop in the price of oil. Occidental was forced to cut its dividend and redouble its efforts to shore up its finances.
It weathered that rough patch and is now back on a growth path. Management is regularly raising the dividend, and the company has even gotten back into the acquisition game — the $12 billion purchase of CrownRock is expected to close this quarter. Here’s the really interesting comparison: Energy giant Chevron has a market cap of $280 billion, while Occidental Petroleum’s market cap is “only” $55 billion.
Sure, neither company is particularly small, but Oxy will likely have an easier time growing its business in a meaningful way than Chevron. And Occidental is clearly trying to act as an industry consolidator in an effort to gain the scale needed to compete with its larger peers. In this way, it’s more of a growth story, and it appears Buffett approves of the company’s prospects. In June, he even went back for more, adding nearly 3 million shares. If you’re looking for an energy stock to add to your portfolio and don’t really care about income, you might want to consider Buffett’s recent decisions to favor Oxy over Chevron.
You don’t have to make any movement
Just because a famous investor does something doesn’t mean you should follow his lead. You need to make the decisions that are best for you you And your portfolio. If you’re a conservative income investor, the move from Chevron to Occidental is probably a bad choice. But if you have a growth bias, or are looking to build a portfolio that offers a mix of growth and income, Buffett’s shift highlights a key difference between giant Chevron and upstart Oxy.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Forget Chevron? Buffett Is Buying This Energy Stock Instead was originally published by The Motley Fool
