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Why Wall Street Thinks Warren Buffett's Biggest Move in Q3 Could Be a Mistake

Motley Fool - Tue Dec 5, 2023

Warren Buffett wasn't very interested in buying stocks during the third quarter of 2023. The legendary investor only purchased one stock for Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) portfolio, initiating a small position in Sirius XM Holdings.

For the most part, Buffett's trading activity last quarter didn't raise any eyebrows. However, there's one notable exception. Here's why Wall Street thinks Buffett's biggest move in Q3 could be a mistake.

Buffett's biggest move in Q3

In addition to initiating a stake in Sirius XM, Berkshire also gained shares of three Liberty Live tracking stocks via spin-offs. Since these didn't require any active buying (and are probably managed by Berkshire investment manager Ted Weschler), these don't count as major moves for Buffett.

Buffett and his team closed out small holdings in several stocks. This seemed to be a housekeeping exercise. Berkshire also reduced its positions in a handful of other stocks, all of which were relatively small-dollar transactions.

The Oracle of Omaha did make one sizable move, though. He sold 12.8 million shares of Chevron(NYSE: CVX). This sale reduced Berkshire's stake in the oil and gas giant by nearly 10.5%.

This wasn't Buffett's first time to trim Berkshire's position in Chevron. He also sold shares in the fourth quarter of 2022 and the first two quarters of 2023.

Why Wall Street likes Chevron

Many analysts on Wall Street no doubt think that Buffett made a mistake by selling Berkshire's shares of Chevron. Of the 24 analysts surveyed by LSEG in December that cover the stock, 16 recommend it as either a buy or a strong buy. Seven others rate the oil stock as a hold. Only one thinks that it will underperform.

The average 12-month price target for Chevron reflects an upside potential of close to 15%. One analyst thinks the stock could soar nearly 27% over the next year.

Why does Wall Street like Chevron? Bank of America's Doug Leggate thinks the sell-off of the stock after Chevron announced plans to acquire Hess was overdone.

Bernstein analyst Bob Brackett upgraded Chevron in early November from market perform to outperform with a price target more than 25% higher than the current price. Bracket wrote to investors that he was "joining the HES [Hess] fan club." He added that he expects "more will join" as Chevron explains the value of the acquisition to shareholders.

In general, Wall Street seems to expect solid demand for oil and gas over the next several years. Chevron will be in an even better position to meet this demand with its pending acquisition of Hess. The company is also taking steps to prepare for the long-term energy transition away from fossil fuels. For example, Chevron acquired a majority stake in ACES Delta, which operates the largest green hydrogen production and storage hub in the U.S.

Is Buffett throwing in the towel on Chevron?

Meanwhile, some might think that Buffett is throwing in the towel on Chevron. After all, he has sold more than 55 million shares of the stock since late last year. That's roughly one-third of Berkshire's previous stake in Chevron.

However, I think it's premature to argue that Chevron has fallen out of favor altogether with Buffett. Even with the trimmed position, Chevron still ranks as the fifth-largest holding in Berkshire's portfolio with a value of close to $16 billion.

I think it's possible that Buffett could continue to reduce Berkshire's stake in Chevron. Whether or not that turns out to be a mistake depends on what he does with the proceeds. He could find better investment alternatives. That said, I tend to agree with Wall Street that Chevron's shares should move higher over the next year.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has positions in Bank of America and Berkshire Hathaway. The Motley Fool has positions in and recommends Bank of America and Berkshire Hathaway. The Motley Fool recommends Chevron. The Motley Fool has a disclosure policy.

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