Warren Buffett‘s Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) has a massive portfolio of stocks, but two companies on the list that have made headlines lately are Chevron (NYSE: CVX) and Occidental Petroleum (NYSE: OXY). In the conglomerate’s latest 13F filing on May 15, Buffett revealed that in the first quarter, he sold around 3.1 million shares of Chevron shares 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 more than $19 billion worth of Chevron’s shares), so it isn’t exactly like he dumped the stock so he could buy Oxy. But he did sell a material amount of Chevron and notably up his stake in Oxy (which was worth about $16 billion at the time of the filling). So it looks like he used the cash raised from the Chevron sale to fund the purchase of additional shares of Oxy. That said, investors in Chevron shouldn’t dump it from their portfolios based on this shift.
In fact, particularly if you are a conservative income investor, you’ll probably want to keep Chevron around. It has a rock-solid balance sheet and a broadly diversified business — both geographically and within the energy sector. It has proven time and again that it knows how to survive every phase of the economic cycle in the highly volatile energy sector, where oil and natural gas prices can make dramatic and swift price moves. The clearest proof of that point is that Chevron has increased its dividend every year for 37 consecutive years.
Equally important for those considering a new purchase now, Chevron’s dividend yield is currently an attractive 4.1%. By contrast, at recent share prices, Occidental Petroleum’s yield is just 1.4%. Clearly, if you are looking to maximize the income your portfolio generates, you won’t want to make the change that Buffett just made. But if income isn’t your top 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 in it directly to help provide financing for its purchase of Anadarko Petroleum. Somewhat ironically in retrospect, Oxy needed that extra cash so it could outbid Chevron. Things went south shortly thereafter for Occidental, since the economic shutdowns that nations around the world engaged in to slow the spread of the coronavirus in 2020 resulted in a steep drop in the price of oil. Occidental was forced to cut its dividend and redouble its efforts to strengthen its finances.
It muddled through that difficult period and is now back on the growth track. Management is regularly raising the dividend again and the company has even gotten back into the acquisition game — its $12 billion purchase of CrownRock is expected to close this quarter. Here’s the really interesting comparison: Energy industry giant Chevron has a market cap of $280 billion while Occidental Petroleum’s market cap is “just” $55 billion.
Sure, neither company is exactly small, but Oxy will likely have an easier time expanding its business meaningfully than Chevron will. And Occidental is clearly attempting to act as an industry consolidator in an attempt to gain the scale it requires to compete with its larger peers. In this way, it is more of a growth story, and it looks like Buffett approves of the company’s prospects. In fact, in June he went back for more, adding nearly 3 million more shares. If you are looking for an energy stock to add to your portfolio and you don’t really care about income, then maybe you’ll want to consider Buffett’s recent decisions to favor Oxy over Chevron.
You don’t need to make a move
Just because a famous investor does something does not mean you should follow their lead. You have to make the calls that are best for you and your portfolio. If you are a conservative income investor, switching from Chevron to Occidental is probably a bad choice. But if you have more of a growth bent, or are seeking to build a portfolio that delivers a mix of growth and income, Buffett’s shift highlights a key difference between giant Chevron and up-and-comer 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 Up This Energy Stock Instead was originally published by The Motley Fool
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