Warren Buffett is widely regarded as the greatest stock market investor of all time. As a result, many people like to copy his moves.
Recently, Buffett has been ploughing billions of dollars into one specific sector. Should I follow him? Let’s discuss.
Warren Buffett is buying oil stocks
Looking at the latest 13F filing (large investment firms are required to disclose their US stock positions to US regulators via 13F filings) for Buffett’s investment company Berkshire Hathaway, I can see that he’s been putting a lot of money into oil stocks recently.
In the second quarter, Buffett bought 120.9m shares in oil giant Chevron. At today’s share price, that represents about $19.7bn worth of stock. Meanwhile, he also picked up about 5.9 million shares in Occidental Petroleum. At today’s market price, that represents about $442m worth of stock.
After these purchases, Buffett held 159.2m shares in Chevron and 226.1m shares in Occidental (at the end of June). At today’s share prices, these holdings are worth about $26bn and $17bn, respectively.
Should I follow Buffett into oil?
While I tend to pay close attention to Warren Buffett moves myself, and own a number of the stocks he does (Apple, Amazon, Mastercard, Visa, etc), this isn’t a move I’m tempted to follow.
One issue I have with oil stocks is that it’s hard to forecast future revenues and earnings. That’s because the price of oil – which has a major impact on energy firms’ revenues – is unpredictable. Going forward, it could remain high. Or, it could fall again.
Another issue for me is the ongoing shift to renewable energy. Right now, governments all around the world are making plans to cut back on fossil fuel use and transition to clean energy. This adds some uncertainty from an investment perspective when it comes to oil stocks.
Linked to this is the increasing focus on sustainable investments. Today, many large money managers are offloading their traditional energy stocks because they don’t meet ESG criteria. I think this trend is likely to continue. In the long run, it could limit share price upside.
Better stocks to buy
Of course, Buffett may end up doing well with oil stocks. Right now, oil prices are high due to supply/demand imbalances created during the pandemic, and oil companies are minting money as a result.
Chevron, for example, recently reported earnings of $11.6bn for the second quarter of 2022, up from $3.1bn a year earlier. As a result of their big profits, these companies are rewarding investors with dividends and share buybacks. If oil prices remain high, oil stocks could continue to generate attractive returns for investors.
However, this trade isn’t for me. All things considered, I think there are better investments for my portfolio today.