Author丨Wu Bin Editor丨Li Yingliang Picture Source丨Picture insect In the hot summer, what is soaring along with the temperature is Buffett’s enthusiasm for energy stocks. U.S. Securities and Exchange Commission (SEC) documents show that Berkshire spent US$582 million to buy 9.9 mil

Author丨Wu Bin

Editor丨Li Yingliang

Picture Source丨Tu Chong

In the hot summer, what is soaring along with the temperature is Buffett's enthusiasm for energy stocks.

U.S. Securities and Exchange Commission (SEC) documents show that Berkshire spent US$582 million last week to buy 9.9 million shares of Occidental Petroleum. The total shareholding ratio has climbed to 17.4%, which is higher than the second largest shareholder Vanguard. 's holdings are about 60% higher. In addition, Berkshire also owns 100,000 shares of Occidental Petroleum preferred stock , worth US$10 billion, and has warrants to acquire an additional 83.9 million shares for US$5 billion. This also means that Berkshire’s actual shareholding ratio has far exceeded 20%.

Stock gods continue to increase their positions in energy giants such as Occidental Petroleum. What is brewing behind the scenes? What’s the logic behind being optimistic about energy stocks? Is

planning a bigger move?

In fact, Buffett and Occidental Petroleum have a long-standing "fate".

In 2019, Buffett invested US$10 billion to assist Occidental Petroleum in acquiring Anadarko Petroleum. However, after the outbreak of the epidemic, the stock prices of major energy companies plummeted. In 2020, Buffett chose to clear out Occidental Petroleum and abandoned it before dawn.

Since then, with the recovery of the global economy, the world's strong demand for energy has rekindled, the contradiction between supply and demand has become increasingly prominent, and oil prices have also soared. Buffett began buying Occidental Petroleum heavily after speaking with the company's CEO during an earnings call in February. Buffett said frankly: "We watched Occidental Petroleum's earnings call on February 25, and then we bought everything we could buy. I looked at every number in the earnings report, and Occidental Petroleum CEO Vicki Hollub was doing it in the right way. Operating company.”

Occidental Petroleum’s financial report for the first quarter of this year did not disappoint the stock gods. In mid-May, Occidental Petroleum announced its financial report. The net profit attributable to shareholders in the first quarter was US$4.676 billion, a record high. In comparison, the net loss in the same period in 2021 was US$346 million. Occidental Petroleum's net sales in the first quarter were US$8.349 billion, a year-on-year surge of more than 50%. Free cash flow for and was US$3.3 billion, also a record high.

Boosted by factors such as stellar performance, Occidental Petroleum has been the best-performing stock in the S&P 500 index so far this year, with its stock price almost doubling during the year.

What is more noteworthy is that as Berkshire continues to increase its position in Occidental Petroleum, the market is increasingly speculating that the stock god may intend to acquire the entire company. Investment bank Truist Securities said in a report that once Occidental Petroleum's credit situation improves, Berkshire may acquire all of its shares. Neal Dingamm, managing director of

Truist Securities, analyzed that once Occidental Petroleum becomes an investment-grade company, Buffett is likely to buy the remaining two-thirds of Occidental Petroleum. Berkshire typically only holds investment-grade companies, and Occidental Petroleum "will soon become an investment-grade company, and its debt may soon fall below $20 billion." He expects Occidental to reach investment grade later this year.

What is the logic behind being optimistic about energy stocks?

Judging from Buffett's investment actions this year, energy stocks can be said to be "a collection of thousands of favorites."

Of the US$41 billion that Berkshire added to its positions in the first quarter, nearly half were in oil stocks. In addition to Occidental Petroleum, Berkshire also significantly increased its holdings in Chevron, another crude oil giant, in the first quarter of this year. As of the end of the first quarter, Berkshire's investment in Chevron was US$25.9 billion, equivalent to holding approximately 159 million shares, which is much higher than the approximately 38 million shares held at the end of the fourth quarter of 2021.

At this year's shareholder meeting, Buffett was asked why he held a heavy position in oil stocks. Buffett said that the U.S. government currently has a lot of strategic oil reserves. Now everyone may think that it is a good thing that the United States has so many oil reserves. “But if you think about it carefully, the current reserves are still not enough. They may be gone in three to five years, and you don’t know what will happen in three or five years."

Buffett also recently explained that ESG issues and investors' general indifference to the traditional energy industry have caused the industry to experience significant shocks in the past few decades, which directly affects the market value of companies in related industries and creates buying opportunities.

The stock god's words have actually revealed the reason for being optimistic about energy stocks: there will be a "shortage" of energy in the future. Wang Chengqiang, director of the

New Era Futures Research Institute, analyzed to 21 Century Economic Report reporter that the geopolitical crisis will push international oil prices to highs. The capital expenditure of the industry lags significantly behind the oil price. In the first quarter of this year, the capital expenditure of international oil and gas companies is still nearly half of the historical high. The industry's long-term problem of insufficient capital expenditure is more serious, which is the underlying logic of bullishness on the value of the oil and gas industry.

The low price of energy stocks also satisfies Buffett's concept of value investing: Even after experiencing a rise in stock prices, Occidental Petroleum's trading price is less than 6 times its expected earnings in 2022.

A senior crude oil analyst at a large futures company told a reporter from the 21st Century Business Herald. Analysts said that it is not surprising that Buffett has increased his holdings in energy stocks such as Occidental Petroleum, because the stock price is cheap enough, and Buffett is also optimistic about the energy industry. The energy transformation cannot be achieved overnight, and traditional fossil energy will continue to play an irreplaceable role for a long time. The lack of investment in recent years also means that the tight supply situation in the energy market is difficult to change in the short term. The future performance of energy stocks is worth looking forward to, which was also echoed by Mike Wirth, CEO of Chevron. , the oil industry's demand is growing much faster than supply, and adding refining capacity is not easy, especially in the current environment. "You are looking at a 10-year capital investment and it will take decades to provide returns to shareholders. And the current policy environment is that governments around the world are saying: We don't want these products. "

Officially, while the Biden administration is asking U.S. producers to increase production, it is also planning to take action against oil and gas giants. Biden complained that these oil companies make "more money than God." At the same time, the U.S. Congress is ready Legislation to impose a windfall profit tax on excess profits of large oil companies

For the future, although renewable energy is the general trend, recent supply chain disruptions and natural gas price spikes continue to remind investors that in the process of green transformation. , Fossil fuels will still play an important role.

"Although the world is advancing the process of carbon neutrality , traditional energy is still the ballast and stabilizer of economic development. Traditional energy and new energy have an interdependent, symbiotic and co-prosperous relationship. . It is foreseeable that the world will still rely on traditional energy sources for a long time. "Wang Chengqiang said forward.

Editor of this issue Li Yutong Intern Li Kailin