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Warren Buffett-Led Berkshire Hathaway Sells 9.29 Million Shares of Chevron Stock. What Now?

Motley Fool - Sat Aug 19, 9:17AM CDT

On Aug. 14, Warren Buffett-led Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) released its quarterly 13F filing, which shows holdings as of June 30. Five companies make up 79.6% of Berkshire's public equity portfolio. Of those top five holdings, only one company had a change in share count between March 31 and June 30 -- Chevron(NYSE: CVX).

Berkshire cut its Chevron stake by 7% in the quarter after slashing the stake by 20.8% in the period between Dec. 31, 2022, and March 31, 2023. Should investors follow suit and sell Chevron stock, or is the integrated oil and gas major worth holding or even buying now?

Bird's eye view of an oil and gas production site in a desert setting.

Image source: Getty Images.

Context is key

Berkshire Hathaway Energy (BHE) is one of the largest subsidiaries of Berkshire Hathaway. BHE has interests in a number of utilities and oil and gas assets. So when Berkshire began buying Chevron stock in late 2020, it caught some investors by surprise -- especially because oil and gas is so much more volatile than safer sectors such as consumer staples (like Coca-Cola).

Buffett is a value investor at heart. And when the oil and gas industry was brought to its knees in 2020, it piqued Buffett's interest.

BHE spent $9.7 billion on Dominion Energy's oil and gas assets at what was in hindsight a bargain-bin price. Around the same time, Chevron hit a 10-year low in early 2020, and then suffered another brutal sell-off later on in the year. It was then that Berkshire began buying the dip on Chevron.

But the real buying spree came in the first quarter of 2022, when Berkshire's Chevron position suddenly pole-vaulted from 38.25 million shares as of Dec. 31, 2021, to 161.44 million shares as of March 31, 2022.

Berkshire Hathaway Chevron Shares

File Date

Holdings As Of Date

123.12 million

8/14/2023

6/30/2023

132.41 million

5/15/2023

3/31/2023

162.98 million

2/14/2023

12/31/2022

165.36 million

11/14/2022

9/30/2022

161.44 million

8/15/2022

6/30/2022

159.18 million

5/16/2022

3/31/2022

38.25 million

2/14/2022

12/31/2021

28.70 million

11/15/2021

9/30/2021

23.12 million

8/16/2021

6/30/2021

23.67 million

5/17/2021

3/31/2021

48.5 million

2/16/2021

12/31/2020

0

11/16/2020

9/30/2020

Data source: Berkshire Hathaway SEC Filings.

Berkshire kept its Chevron position mostly unchanged for the rest of 2022, riding the 53% gain Chevron made last year. It was a massive win for Berkshire in a short amount of time. But with Chevron stock stalling while growth stocks rebounded in 2022, Berkshire began selling Chevron stock.

Berkshire sold 39.86 million Chevron shares in the first half of 2023, representing a 24.5% decrease compared to the end of last year. If you look at Chevron's stock price on a chart, the timing of Berkshire's initial purchase, tripling down on the stock, and its trimming of the position look brilliant in hindsight.

Interpreting Berkshire's moves

While we often think of Buffett as a long-term buy-and-hold investor (as he has done with Coca-Cola, American Express, Bank of America, and many other companies), the somewhat wild trading of Chevron appears a little reckless and short-term-minded at first glance. But if you zoom out and look at the big picture, it seems more reasonable.

What drew Berkshire to Chevron in the first place was most likely its dirt cheap valuation and its leading position in an industry that Berkshre understands very well. What drove Berkshire to triple down on Chevron stock in early 2022 was the reality that the world would shift its attention toward energy security, that European countries would need to drastically increase their natural gas imports from the U.S., and that U.S. oil and gas would have the green light to ramp production.

Chevron isn't as screaming a buy as it was when it was half the price it is today. But Berkshire still owns a boatload of Chevron stock, and it certainly isn't selling it at the same pace at which it bought it back. That suggests Berkshire still thinks Chevron's a good value at the current price.

What's more, Chevron pays a 3.8% dividend, which is higher than Bank of America, American Express, Apple, and even Coca-Cola. The dividend provides an incentive to simply hold the stock, especially if Berkshire believes Chevron has more growth potential than other high-yielding stocks in its portfolio, like Kraft Heinz.

Chevron remains a balanced buy

When looking at a famed investor's decisions, it's important to put them into context. Berkshire's moves make a lot of sense when you consider the sheer volume of shares it bought in first-quarter 2022. Similarly, if anyone went aggressively into a single stock and the risk/reward wasn't as compelling because the stock price went up a lot, then it would make sense to trim the position. If you own Chevron stock, there's not a lot of pressure to sell. The company is doing very well. It has a dirt cheap valuation, a sizable dividend yield, and an impeccable balance sheet.

If you have some cash and are looking for a quality dividend stock to buy, Chevron also makes good sense. The company is in a position to deliver value to shareholders through future dividend raises and share repurchases. Its diversified position means that Chevron should remain a stable stalwart for the foreseeable future.

Back-to-back quarters of Berkshire reducing its Chevron stake make perfect sense and aren't necessarily a warning sign to sell the stock. Chevron is still Berkshire's fifth largest public equity holding, and it owns more than double the Chevron shares it started with when it began buying the stock in 2020.

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American Express is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Daniel Foelber has the following options: long October 2023 $45 calls on Dominion Energy. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool recommends Chevron, Dominion Energy, and Kraft Heinz and recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.

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