Energy stocks are emerging as a top favorite with Wall Street elites even as the recent string of bank failures spook markets.
Warren Buffett’s Berkshire Hathaway spent nearly $500 million on Occidental Petroleum stock in just three days.
BlackRock and Goldman Sachs have also touted their preference for energy stocks.
The worst banking failures since 2008 have sent shockwaves across markets this month, but that hasn’t stopped some of Wall Street’s biggest names from piling into pockets of value in equities.
Warren Buffett’s investment firm has been buying into Occidental Petroleum, last year’s top performing stock in the S&P 500 index, resuming its purchases in recent weeks after a five-month hiatus. Berkshire poured more than $11 billion into the firm in just over 12 months, with the latest purchases of $467 million reported this week. It also invested around $20 billion in Chevron last year.
Warren Buffett’s luck changed this year, allowing him to spend a record sum on stocks and end his deal drought. Here are his 6 highlights of 2022.
Warren Buffett spent a record sum on stocks and made a major acquisition in 2022.
The Berkshire Hathaway CEO tore into bitcoin, adjusted some overseas bets, and gave a surprise gift.
Here are the investing icon’s 6 highlights of 2022.
Warren Buffett’s luck changed in 2022. After years of battling to find bargains and watching Berkshire Hathaway‘s cash stack up, the famed investor seized his chance to put his conglomerate’s mountain of money to work.
Buffett spent a record sum on stocks, executed a major acquisition, and made some striking changes to his overseas bets. He also crowed about four of Berkshire’s key holdings in his yearly letter, trashed bitcoin at the annual shareholders’ meeting, and made a surprise donation to his children’s charities.
Here are Buffett’s 6 highlights from 2022:
The annual letter
Buffett published his famous annual letter to Berkshire shareholders in February.
The investor vented his frustration with Berkshire’s mammoth $144 billion cash pile, blaming a lack of bargains in the stock market. He also celebrated the “Four Giants” among Berkshire’s businesses: insurance, railroads, energy, and its enormous Apple stake.
Moreover, Buffett appeared to respond to criticism of his tax practices by noting Berkshire paid $3.3 billion of federal income tax in 2021 — nearly 1% of all the corporate income taxes collected by the US government that year.
Buffett struck a deal to buy Alleghany for nearly $12 billion in March. Berkshire completed its takeover of the insurer in October, ending a years-long drought on the acquisition front.
The investor showcased his trademark approach to dealmaking, which prizes trust and simplicity. He proposed the merger over dinner with Alleghany’s CEO, who previously ran a Berkshire subsidiary, and the pair formally announced a deal less than two weeks later.
Buffet also refused to budge on the deal terms, and when Alleghany enlisted Goldman Sachs as a financial advisor, he insisted the investment bank’s fee was subtracted from Berkshire’s offer price.
An epic buying spree
Berkshire plowed a net $41 billion into stocks in the first quarter of 2022, setting a new record for its quarterly spending on equities.
Buffett and his team built large stakes in HP, Chevron, Occidental Petroleum, Citigroup, Paramount, and Taiwan Semiconductor in the first nine months of 2022. Berkshire also spent over $5 billion on buybacks and made other sizeable purchases, lifting its spending on stocks and acquisitions for the year to an astounding $70 billion or so.
The annual meeting
Buffett hosted Berkshire’s annual shareholder meeting in his hometown of Omaha, Nebraska in April, after two years of virtual gatherings due to the pandemic.
The investor called out the reckless speculation in the stock market, underlined the grave threat posed by inflation, and declared he wouldn’t pay $25 for all the bitcoin in the world.
Buffett made some big moves in 2022 that deserve special attention. For example, he poured a total of about $30 billion into Chevron and Occidental, propelling the pair of oil-and-gas companies onto the list of Berkshire’s most-valuable holdings.
The investor and his team also revealed in November they had boosted their billion-dollar bets on Japan’s five largest trading houses.
In contrast, they sold BYD shares for the first time in 14 years. Berkshire has now slashed its position in the Chinese electric-vehicle maker by around 22%, and pocketed an estimated $1.2 billion profit from the disposals.
An unexpected gift
Buffett made his usual annual donation of Berkshire stock in June, dividing the $4 billion gift between the Bill & Melinda Gates Foundation and four of his family’s charities.
Unexpectedly, he contributed a further $759 million worth of Berkshire stock to his three children’s foundations for Thanksgiving, saying he was proud of their charitable work and wanted to show his appreciation.
7/7 SLIDES
BlackRock, the world’s biggest money manager, prefers energy stocks on the prospect that oil and gas prices could rise this year amid supply constraints, strategists led by Wei Li wrote in a note published this week. The firm also favors healthcare shares for their “defensive characteristics in a downturn” and financials given they tend to benefit from higher interest rates.
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Goldman Sachs’ chief US equity strategist David Kostin said last month it was time to turn to value stocks from sectors such as energy and healthcare. More recently, the US bank upgraded the European oil and gas giant Shell to a buy rating in February, predicting share gains of as much as 40%.
“Rates are moving higher, and therefore we’re looking for value. That’ll be the strategy and the playbook for this year,” Kostin told Bloomberg TV at the time, referring to the Federal Reserve’s interest-rate increases over the past year.
“There’s a much greater share of earnings that are coming from energy as compared with its market weight. Like 10% of earnings in the market and maybe 5% of market cap, so that has suggested that earnings are likely to be much higher there,” he added.
Buffett likes Occidental for its domestic foothold and the fact it’s paying off debts, distributing dividends, and repurchasing shares, the oil company’s CEO Vicki Hollub has said. Berkshire won approval from regulators in August to increase its Occidental ownership to 50%, signaling they’re not done building their stake.
Buffett’s firm has stuck with its bullish approach toward energy stocks this month while BlackRock also has reiterated its preference for the sector in spite of a slump in oil prices. Crude prices have slid in recent weeks on fears the US bank collapses could trigger an economic slump that would sap energy demand.
The price of West Texas Intermediate crude, the US benchmark, fell below $70 per barrel this week to lows unseen since 2021. The S&P 500 Energy Index of sectoral shares is down about 12% so far this year, after advances of 59% and 48% in 2022 and 2021, respectively.
The current bout of financial-market turbulence stems from a string of bank collapses over the past week or so. Silicon Valley Bank folded last Friday in the second-biggest such collapse in history. That came just days after Silvergate Capital shut down, and was quickly followed by the closing of Signature Bank.
Economic uncertainty fueled by the banking turmoil has led to a jump in oil market volatility. The CBOE Crude Oil Volatility Index is on track for the biggest weekly increase in over a year.
