It has been an up and down year for Warren Buffett's portfolio. Many of his biggest positions have been trimmed aggressively. But according to recent filings, his holding company, Berkshire Hathaway, is loading up on one of Buffett's favorite stocks. Last quarter, it boosted its position by more than $500 million.
On paper, this stock has it all. It's priced at a discount to the market, offers a compelling dividend yield, and could generate impressive growth over the next few years.
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This has been one of Warren Buffett's favorite stocks since 2020
Berkshire Hathaway first took a position in Chevron (NYSE: CVX) back in 2020, not long after the nadir of the COVID-19 flash crash. Buffett's estimated purchase price was around $80. But over the years, he has managed the position aggressively. In early 2021, for instance, just one year after his initial purchase, Buffett slashed his Chevron stake by more than 50%. Towards the end of 2021, however, he began rebuilding his position. Several more purchases and sales occurred in 2022, including the massive acquisition of 121 million shares in the first quarter.
Notably, Berkshire has been a net seller in recent quarters. In six of the past seven quarters, for example, Berkshire has sold more Chevron stock than it purchased. But that all changed this quarter when Buffett purchased nearly 3.5 million shares worth roughly $520 million. It was one of the biggest stock purchases of the quarter for Buffett, giving Berkshire a 7% stake in the entire business.
Why did Buffett load up on this giant oil stock that he knows so well? The numbers below paint a compelling picture.
Chevron stock looks very attractive for certain investors
After several consecutive winning years, the stock market as a whole isn't obviously a value right now. The S&P 500, for example, trades at 31 times earnings -- well above its long-term average. Chevron stock, meanwhile, trades at just 19 times earnings. Revenue growth is stagnant right now, but free cash flow remains high, helping to support a 4.5% dividend yield.
Part of the challenge with Chevron stock right now isn't under its direct control. Oil prices slid heavily this year, falling under $60 per barrel. Oil inventories continue to rise, with meaningful surpluses expected in 2026 due to rising production globally. In total, it's a tough place to be for businesses that sell oil.
As an integrated producer, with interests in refining, chemical production, and even energy generation for artificial intelligence applications, Chevron has long been able to manage industry cyclicality with ease. Chevron's CEO focuses on cost controls and capital efficiency to ensure profits remain stabilized even with low oil prices. But unless those oil prices move higher, expect so-so results from Chevron -- a big reason why shares have traded sideways since 2022.
Here's the thing: Chevron stock is still a very compelling purchase for certain investors. If you're finding it difficult to find market values, are worried about a potential bear market, or believe geopolitical tensions are about to rise, allowing oil prices to recover quickly, Chevron shares could be a fit. While shares aren't a steal, they are arguably fairly valued at 19 times earnings. The dividend yield and free cash flow consistency, meanwhile, can help offset losses during a market downturn. And given ongoing geopolitical disputes, it's not unreasonable to expect sudden shifts in oil demand and supply.
All in all, this looks like a classic move for Buffett in this market environment. He understands Chevron's business model well, and with a rising cash hoard, it's clear that he's finding it difficult to spot market bargains. Chevron is as close to a value stock in today's environment as it gets.
Should you invest $1,000 in Chevron right now?
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Chevron. The Motley Fool has a disclosure policy.
