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Buffett Sticks with Energy Stocks: Should You?

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  • (0:45) - Should You Follow Warren Buffett's Investment Strategy?
  • (10:00) - What Has Berkshire Hathaway Been Buying and Selling?
  • (30:00) - Episode Roundup: OXY, CVX, APA, TTE, FANG


Welcome to Episode #359 of the Value Investor Podcast.

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

The 13-F filings for the fourth quarter of 2023 were out this month. Those filings tell us what the big hedge fund and money managers are buying, and selling, in their portfolios. For years, the Value Investor podcast has looked at the 13-F filings for Warren Buffett’s Berkshire Hathaway equity portfolio.

As of the end of the third quarter of 2023, Berkshire Hathaway was sitting on a record amount of cash totaling $157.2 billion. Was Buffett going to deploy any of it into buying more stocks?

Apparently, the answer is “yes.” Although he didn’t spend much of the cash hoard doing it.

Berkshire Dives into Energy

1.       Occidental Petroleum (OXY - Free Report)

Berkshire bought shares of Occidental Petroleum throughout 2023. It continued to buy more Occidental Petroleum in 2024. We only know about the 2024 Occidental purchases because they fall outside of the 13-F reporting requirements.

Occidental Petroleum is now Berkshire’s seventh largest holding in the equity portfolio, but it still remains a small percentage overall, at just 4.06%.

Occidental pays a dividend, currently yielding 1.5%. Berkshire receives $218.3 million in dividend income from this position.

Should investors be following Buffett into Occidental Petroleum in 2024?

2.       Chevron Corp. (CVX - Free Report)

Berkshire Hathaway has owned shares of Chevron since the fourth quarter of 2020. It has bought, and sold, several times through those 3 years. However, Berkshire had not added to its position since the first quarter of 2022, until last quarter when it bought 15.8 million shares.

Why buy more now?

Chevron is cheap. It has a PEG ratio of just 0.8. Earnings estimates have been cut, however, as oil and natural gas prices have fallen. Earnings are expected to fall 0.8% in 2024.

Chevron pays a dividend, currently yielding about 4%.

Should you be buying Chevron now that Buffett has bought more?

3 Cheap Energy Stocks for 2024

Most of the energy stocks are cheap. They fell out of favor in 2023. For value investors, that means it’s a buying opportunity.

Here are some additional energy companies that are trading with low valuations in 2024.

1.       Diamondback Energy (FANG - Free Report)

Diamondback Energy is a big Permian Basin producer of oil and natural gas. It recently announced it would buy Endeavor Energy Partners for $26 billion. Shares of Diamondback Energy have jumped 31.7% in the last year and are now at new 5-year highs. It’s one of the few energy stocks to be breaking out.

Diamondback Energy is still cheap, with a forward P/E of 9.8. It pays a base dividend yielding 1.9% but did say it was lowering its payout to shareholders to 50% of free cash flow from 75% in 2023 due to the costs of the acquisition.

Should Diamondback Energy be on your short list?

2.       APA Corp. (APA - Free Report)

APA is an international oil and natural gas producer with drilling in Egypt, the United States, the North Sea and Suriname. It’s in a 50/50 partnership with TotalEnergies in Suriname. Shares of APA have sunk 17% over the last year and are trading near 52-week lows.

APA is dirt cheap with a forward P/E of just 6.1. It also pays a dividend, yielding 3.1%.

Should APA be on your short list?

3.       TotalEnergies SE (TTE - Free Report)

TotalEnergies is a French energy company with global oil production. It has partnered with APA in Suriname. Shares of TotalEnergies are up just 2.2% over the last year.

TotalEnergies remains a cheap stock with a forward P/E of just 6.9. It also pays a dividend, which is currently yielding 5%.

Should investors seek out a European energy giant like TotalEnergies in 2024?

What Else Do You Need to Know About Buffett and Energy Stocks?

Tune into this week’s podcast to find out.

[In full disclosure, Tracey owns shares of CVX and APA in her personal portfolio.]


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