Warren Buffett’s company, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), recently revealed its latest stock transactions. One of its more notable purchases was shares of oil giant Chevron (NYSE: CVX). The move saw Buffett’s company add to one of its biggest positions.
Berkshire Hathaway Increases Its Stake in Chevron
Berkshire Hathaway bought 16 million shares of Chevron during the fourth quarter. That brought its total to 126 million shares worth over $19 billion, making Chevron its fifth-largest holding at 5.3% of its investment portfolio. This position is larger than that of fellow oil producer Occidental Petroleum, currently at number six. While Berkshire owns 28.3% of Occidental’s outstanding shares, they are worth less than $15 billion, putting the oil company at 4% of its portfolio.
Berkshire’s fourth-quarter purchase of Chevron was a pivotal move. Prior to this, Buffett’s company had started trimming its investment in the oil producer, selling 13 million shares in the third quarter. The likely driver of the switch from selling to buying was Chevron’s sell-off during the quarter:
CVX data by YCharts
Shares of Chevron declined significantly during the quarter, weighed down by its decision to acquire fellow oil producer Hess in late October. The market wasn’t entirely thrilled with that move, which will add Guyana to Chevron’s portfolio. This move adds geopolitical risk following news that the country’s neighbor, Venezuela, threatened to annex part of its territory, potentially gaining control of the offshore oil resources.
The Bull Case for Chevron
Despite the added risk from acquiring Hess, Chevron has a robust history of managing geopolitical issues and integrating large acquisitions. The company believes its Hess deal will create value for investors over the long term by enhancing its free cash flow and extending its growth profile into the 2030s. The acquisition would help Chevron more than double its free cash flow by 2027, assuming $70 oil. Additionally, the company estimates more than 10% annual growth in free cash flow through 2027.
Chevron also continued investing to grow its traditional and lower-carbon businesses. Its worldwide production surged by 4% last year, fueled by its acquisition of PDC Energy and growth in the Permian Basin, where its output surged by 10%. The company also acquired a majority stake in ACES Delta, developing a leading green hydrogen production and storage hub, and invested in renewable fuels production and carbon capture and storage capabilities.
Making Sense of the Move
Warren Buffett’s company capitalized on the sell-off in Chevron to buy more shares of the oil giant. While its acquisition of Hess adds risk, it will also significantly enhance its growth profile. Meanwhile, the company’s investment strategy continues to pay dividends by growing its traditional and lower carbon businesses, cash flow, and cash returns. With substantial growth prospects ahead, Chevron could prove to be a very enriching long-term investment. Following Buffett’s company’s decision to buy the dip in Chevron could be a prudent move.
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Matt DiLallo has positions in Berkshire Hathaway and Chevron. 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
