For almost 60 years Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has put on a show for Wall Street. Since he became CEO in 1965, the benchmark S&P500 has increased by more than 35,000%, including dividends paid. By comparison, the affable “Oracle of Omaha” has overseen a total gain on his company’s Class A shares (BRK.A) of over 4,900,000%!
When you crush Wall Street’s broadest stock index so decisively, you’re going to attract a lot of attention. This is why investors wait once a quarter for Berkshire Hathaway to file its Form 13F with the Securities and Exchange Commission. A 13F shows investors exactly which stocks Buffett and his top investment advisors, Todd Combs and Ted Weschler, have bought and sold.
While Berkshire’s 13Fs have been a veritable goldmine for decades, they don’t tell the full story about Warren Buffett’s favorite stock to buy: a company whose shares have been bought for 23 consecutive quarters, dating back to July 2018.
Warren Buffett has a renewed fascination with energy stocks
One of the more interesting aspects of Berkshire’s 44-stock, $387 billion investment portfolio is that it is highly concentrated. This means that Buffett and his team strongly believe in devoting a greater portion of their company’s capital to their best investment ideas. On June 14, roughly 63% of the invested capital was invested in just three shares.
For decades, financial stocks (Buffett’s favorite sector to invest in) and consumer staples made up a significant percentage of invested assets. But lately we’ve witnessed Berkshire’s brightest minds turning to energy stocks.
Oil and gas stocks have largely been a sideshow for the Oracle of Omaha since the early 2000s. But just like last week Chevron (NYSE:CVX) And Western petroleum (NYSE:OXY) together accounting for nearly $34 billion in market value. In fact, the 252.3 million shares Berkshire owns in Occidental have been rebuilt from scratch since the first quarter of 2022.
Buffett, Combs, and Weschler would not have committed this amount of capital to Chevron and Occidental Petroleum if they did not strongly believe that the spot price of crude oil would remain high relative to the historical average. Macro factors certainly support the argument that oil prices can remain high.
During the COVID-19 pandemic, major oil and gas companies were forced to cut capital expenditure (capex) for three years due to historic demand uncertainty. Even as capital expenditures have normalized in the wake of the pandemic, increasing crude oil supply to meet growing global demand has proven to be a challenge. Drilling is typically the most profitable, highest-margin segment for integrated energy companies. As long as the supply of crude oil remains tight, the oil price is likely to be high.
Being ‘integrated’ energy operators also has its advantages. In addition to their respective drilling segments, Chevron oversees transmission pipelines and refineries, with both companies also operating chemical plants. These midstream and downstream activities provide predictable cash flow and help hedge against any downside from the spot price of crude oil.
The major oil companies are also known for their generous capital return programs. Chevron’s board approved a $75 billion stock buyback program in January 2023 and has increased its annual base dividend for 37 consecutive years. Although Occidental Petroleum has been trying to dig itself out of a significant debt hole since acquiring Anadarko, the company has gradually increased its quarterly dividend over the past two years.
Meet the stocks Warren Buffett has bought for 23 quarters in a row
Berkshire Hathaway’s quarterly 13Fs make it crystal clear that Buffett and his team are big fans of the oil and gas industry right now. But not a single stock listed on the company’s 13Fs has been purchased by the Oracle of Omaha for nearly 23 consecutive quarters.
To find Buffett’s favorite stocks to buy, look beyond the 13Fs and delve into his company’s quarterly results. On the last page of these results, just before the executive director certifications, you will find detailed share repurchase activity for the quarter. Time for a plot twist… Warren Buffett’s favorite stock to buy is shares of his own company, Berkshire Hathaway!
Before July 2018, there was a rigid line in the sand that dictated when share buybacks could take place. In order for Buffett to greenlight the stock buyback, Berkshire’s stock had to be valued at or below 120% of book value (i.e. no more than 20% above book value, as of the most recent quarter). At no time before a lot of In the years leading up to July 2018, Berkshire shares had fallen at or below this threshold. As a result, not a single share was repurchased.
On July 17, 2018, Berkshire’s board reworked its stock buyback criteria to ensure that Warren Buffett and his recently deceased right-hand man, Charlie Munger, could step off the sidelines and into the proverbial game.
Under the new criteria, redemptions can take place without a ceiling or end date, provided that:
-
Berkshire Hathaway has at least $30 billion in cash, cash equivalents and U.S. Treasury securities on its balance sheet (the company ended March 2024 with $189 billion in cash); And
-
Warren Buffett believes that stocks are inherently cheap.
Since these new criteria were adopted in mid-July 2018, Warren Buffett has purchased more than $77 billion worth of his company’s stock in 23 consecutive quarters.
Since Warren Buffett’s company doesn’t pay dividends, buying back its own shares is the clearest way to reward Berkshire Hathaway shareholders. A steady stream of stock repurchases incrementally increases the ownership stake of the company’s investors. In short, it encourages the long-term thinking that Buffett favors among Berkshire shareholders.
Additionally, companies with stable or growing net income, such as Berkshire Hathaway, may benefit from a declining number of shares outstanding. Because there are fewer shares to divide the net income into, earnings per share (EPS) tends to increase over time. This increase in earnings per share could make Berkshire stock even more attractive to fundamental-minded investors.
Should You Invest $1,000 in Berkshire Hathaway Right Now?
Consider the following before buying Berkshire Hathaway stock:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Berkshire Hathaway wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $830,777!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns June 10, 2024
Sean Williams has no position in any of the stocks mentioned. 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.
Warren Buffett Has Bought Shares of This Stock 23 Quarters in a Row — and It’s Not Chevron or Occidental Petroleum was originally published by The Motley Fool
