Given Warren Buffett’s status as “America’s Favorite Value Investor”, people go absolutely crazy when the Oracle’s 13F filings are made public. That’s because SEC document can provide a window into Buffett’s thinking on which stocks are the biggest bargains in the market. And given Berkshire Hathaway’s (BRK.B) favorite holding period of “forever,” regular retail investors truly have a chance to piggyback on of the greatest investors of our time.
With that said, the Oracle of Omaha’s latest major is buy is certainly a doozy in both the size and potential value. That huge purchase was major integrated oil stock Exxon Mobil (XOM).
For investors, Buffett buying XOM serves as comment on just how cheap the energy giant has become relative to its peers and rivals. That means the time to “put a tiger in your tank” maybe finally here.
With production problems and refining issues plaguing Exxon over the last few quarters, the stock has significantly underperformed many of the other stocks in the energy sector. That has resulted in many value hounds looking at XOM shares in a whole new light. Respected value investor Don Yacktman recently said that “Exxon is like a reasonably-priced high-quality bond.”
Buffett did Yacktman one step better and sunk a ton of money — $3.45 billion to be exact — into the integrated energy firm. That makes Berkshire’s buy of XOM the largest new holding since adding International Business Machines (IBM) back in 2011. Overall, the Oracle is now the proud owner of 40.1 million shares of Exxon.
While the filing doesn’t actually say whether or not Buffett made the decision to purchase shares — he has been farming out smaller purchases to managers at GEICO and Berkshire’s other insurance subsidiaries — it can be seen as major conformation on just how cheap Exxon has gotten over the past year. Shares are only up about 7.7% this year — with much of that gain coming over the last few weeks after XOM reported earnings. That performance pales in comparison to the S&P 500’s return of about 26%.
$3.45 billion isn’t a small chunk of change, so someone at Berkshire must truly believe that XOM shares are a real value. The other interesting tell from the filing is that Berkshire Hathaway also decreased its stake in ConocoPhillips (COP) by roughly 44%. Buffett and company now only own 13.5 million shares of COP — down from 24 million. Buffet hung onto ownership of COP’s spun-off refining arm Phillips 66 (PSX).
So given Buffett’s newfound stance on XOM and the energy sector, the question is whether he’s right about buying Exxon.
Signs Point to Yes
It’s true that XOM has suffered over the last few years, but things are finally starting to turn in the right direction for the integrated giant. Last quarter, the oil stock managed to see a 1.5% increase in its output of oil and natural gas, thanks to a slate of new projects that pushed output back over the 4 million barrels per day mark.
That increase follows a two-year stretch of production declines.