This year has been a rollercoaster for Warren Buffett's investment portfolio. Several of his largest holdings have been significantly reduced. However, recent disclosures reveal that his company, Berkshire Hathaway, has been increasing its stake in one of Buffett’s preferred stocks. In the last quarter alone, the position grew by over $500 million.
On the surface, this stock checks all the boxes. It trades below the market average, provides an attractive dividend yield, and has the potential for strong growth in the coming years.
This has ranked among Warren Buffett's top picks since 2020
Berkshire Hathaway initiated its investment in Chevron ( CVX 0.94%) in 2020, shortly after the COVID-19 market crash hit its lowest point. Buffett is believed to have bought in at around $80 per share. Over time, he has actively managed this holding. For example, in early 2021, just a year after first buying in, Buffett cut his Chevron position by more than half. By late 2021, though, he began to rebuild his stake. Throughout 2022, there were several more transactions, including a major purchase of 121 million shares in the first quarter.
Interestingly, Berkshire has been a net seller in most recent quarters. In six out of the last seven quarters, Berkshire sold more Chevron shares than it acquired. That trend reversed this quarter, when Buffett bought nearly 3.5 million shares, valued at about $520 million. This was one of Buffett’s largest stock buys of the quarter, raising Berkshire’s ownership to 7% of the company.
What prompted Buffett to significantly increase his stake in this major oil company he knows so well? The following figures help explain his decision.
Chevron shares are especially appealing to certain investors
After several years of strong performance, the overall stock market doesn’t appear to offer much value at present. The S&P 500, for instance, is trading at 31 times earnings, which is well above its historical norm. By contrast, Chevron is valued at just 19 times earnings. While revenue growth has stalled, the company’s free cash flow remains robust, supporting a dividend yield of 4.5%.
One of the main issues facing Chevron right now is beyond its control. Oil prices have dropped sharply this year, dipping below $60 per barrel. Global oil inventories are climbing, and significant surpluses are projected for 2026 as worldwide production increases. This creates a challenging environment for oil producers.
As a diversified energy company involved in refining, chemicals, and even power generation for AI, Chevron has long been able to weather industry ups and downs. The company’s CEO emphasizes cost management and efficient use of capital to keep profits steady, even when oil prices are low. However, unless oil prices rebound, Chevron’s performance is likely to remain flat—a key reason its stock price has been largely unchanged since 2022.
Still, Chevron remains a highly attractive option for certain types of investors. If you’re struggling to find undervalued stocks, concerned about a possible market downturn, or think geopolitical risks could push oil prices higher, Chevron might be worth considering. While the stock isn’t a bargain, its valuation at 19 times earnings seems reasonable. The steady dividend and reliable free cash flow can help cushion losses during a market slump. And with ongoing global tensions, sudden changes in oil supply and demand are always possible.
In summary, this move is typical for Buffett in today’s market. He has a deep understanding of Chevron’s operations, and with cash reserves piling up, it’s evident he’s finding few true bargains elsewhere. Chevron stands out as one of the closest things to a value stock in the current climate.