Apple may be the biggest holding in Berkshire Hathaway’s equity portfolio, but it’s not what the company is betting on in 2023.
Berkshire has spent billions over the last 2 years buying shares of energy giants Chevron and Occidental Petroleum. Energy is now about 14% of Berkshire’s equity portfolio and the Chevron position is the third largest in the portfolio.
Buffett has gone against the grain the last 2 years. Even though energy was the best performing S&P 500 sector in 2021 and 2022, energy is still hated on Wall Street and by mom-and-pop investors.
When you invest in an area that everyone else dislikes, and isn’t investing in, that’s called being a contrarian investor. But Buffett has never cared much about being on the “popular” side of an investment. The very definition of being a value investor is being a contrarian investor.
He has been adding to his Occidental Petroleum position in 2023, even as the shares have fallen 6.4% this year.
Most think the energy rally is over. What makes Buffett so certain that it isn’t?
Do You Have What it Takes to Be a Contrarian Investor?
Being a contrarian investor isn’t easy. You must constantly justify your position to others and you have to believe in your strategy, even if it gets rough.
Some of the key ingredients it takes to be a contrarian investor include:
1) Having a strong stomach. You can deal with the volatility of the industry with ease.
2) You can control your emotions. You don’t panic.
3) You can think long-term. Contrarian investment strategies usually take time to pan out. It doesn’t happen overnight. It can take years to be proven “right”.
Buffett has all of these ingredients plus another important one: he has plenty of extra cash on hand. It’s amazing how disciplined you can be in your investments if you have a cash hoard. The extra cash can give you extra confidence to stay the course on the contrarian play. You have a cushion if it gets rocky.
Continued . . .
Zacks Reveals Top “Buffett Stocks” for Today’s Market
We have uncovered some rare companies with spectacular value metrics, rising earnings, and irresistible entry points. Zacks Rank timing enables us to catch them just as their true worth starts to be recognized. Warren Buffett would love them.
Now you can ride them to their full potential. Recent recommendations have climbed as much as +183.8%, +186.9%, +312.7%, and even +348.7%.¹
Special opportunity ends at midnight Sunday, May 14.
See Stocks Now >>
How To Spot a Contrarian Investing Opportunity
Contrarian investing opportunities are sometimes hard to find. It’s not just about buying the industry that is down and out. You want to buy the industry that is being ignored by the Street but which you believe, everyone else is getting the story all wrong. You want to buy the stocks that you think are hidden gems and where you see upside in growth.
Buffett owns a big position in one of the big four “too big to fail” banks, Bank of America. But he was asked about investing in some of the beaten down regional banks at the May 2023 Berkshire annual meeting, which he doesn’t currently own, and he didn’t show any enthusiasm for the idea.
Could it be because the banks are not really a contrarian investing opportunity, but more of a value trap?
Energy Earnings Soar
A key fundamental that often gets overlooked with the energy sector are the earnings. They bottomed in 2020 when the COVID pandemic hit and oil went negative. Hundreds of oil rigs were shuttered as the world locked down. But since those 2020 lows, the earnings have rebounded.
In the first quarter of 2023, the energy industry is expected to bring in $42 billion in earnings. That’s up from $9.5 billion in the first quarter of 2021, as the economy started to reopen from the lockdowns. That’s not a value trap. That’s real growth. Analysts expect the industry to maintain that higher level of earnings through 2025.
Yet, most investors are still shunning the energy stocks. Energy remains one of the smallest sectors in the S&P 500 at around 4%.
Buffett’s Contrarian Buying History in Energy Stocks
In 2002, during the dot-com bust when tech stocks were seemingly getting cheaper by the day, Buffett dove in with a big investment, but not on the fallen tech greats. He didn’t buy Microsoft or Amazon in 2002.
He bought $400 million of Petrochina, one of China’s largest energy companies. He was taking a contrarian bet on energy when it was still down and out.
By 2007, his investment was worth $4 billion. He sold for about a $3.5 billion profit. And those tech stocks? They were still struggling to get back to 2000 highs.
Buffett appears to be deploying this same contrarian playbook to buy energy again in this decade. Many tech stocks have sold off from their 2021 all-time highs. Yet Buffett is not jumping in to buy any of them. He hasn’t even added to the small Amazon position that is already in the Berkshire portfolio.
And despite declaring Apple the “best business” Berkshire owns at the 2023 annual meeting, he hasn’t bought any more shares in 2023.
Instead, he continues to buy up shares of Occidental Petroleum. Berkshire now owns 21.6% of the company, and while he says he has no intention of buying it outright, he did not indicate he’s going to stop adding more shares to his position any time soon.
Warren Buffett isn’t called the “Oracle of Omaha” for nothing. If you want to be a successful contrarian investor, it pays to watch where Buffett is putting his extra cash.
It’s not tech. It’s not even the banks. It’s energy.
Contrarian investing is difficult but it can also result in tremendous opportunities. If you know where to look.
The Easiest, Fastest Way to Get Started
A shortcut for finding “Buffett Stocks” for your portfolio is to look inside our private Value Investor portfolio. We’re currently holding four energy stocks with exceptional gain potential.
We use the same investing criteria Buffett relied on to build his fortune — with one significant advantage.
With Zacks Rank to help us time our entries, we’re targeting true value stocks positioned to begin soaring sooner than other stocks. Then we ride them to their full gain potential. Recent closed positions in the portfolio have surged as much as +183.8%, +186.9%, +312.7%, and even +348.7%.¹
There’s no reason to hesitate. You can access a full month of buys, sells, and market commentary from Value Investor for a total cost of only $1.
Bonus Report: You are also invited to download our Ultimate Four Special Report, highlighting our best 4 stocks to buy in Q2. Each has strong fundamentals and exceptional growth potential, ideally suited to soar in current trading conditions.
Don’t delay. Your opportunity ends at midnight Sunday, May 14.
Look Inside Value Investor and Download the Ultimate Four Special Report Now >>
All the Best,
Value Stock Strategist
Tracey Ryniec, as Zacks Value Stock Strategist, directs our Value Investor portfolio.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research’s newsletter editors and may represent the partial close of a position.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.