The Biggest Threats to Warren Buffett’s Berkshire Hathaway

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Warren Buffett’s Berkshire Hathaway Inc. (BRK.A) (BRK.B) is setting all-time highs, as the widely traded B class shares topped $152 in recent intraday trading.

But will the huge drop in oil prices eventually catch up to BRK.A and BRK.B?

warren buffett berkshire hathaway stocksAfter all, Warren Buffett’s portfolio at Berkshire Hathaway has substantial exposure to oil prices, which have fallen by more than 30% since June and are expected to drop even more in 2015. Indeed, there are a number of threats looming to the Berkshire Hathaway investments portfolio as crude prices continue their decline.

One of the most obvious threats to Berkshire Hathaway is the damage being done to the energy sector, where Warren Buffett has significant interests. Indeed, the energy sector is having a nightmare year now that benchmark prices for Brent crude are down from more than $110 a barrel in mid-summer to less than $70 today.

That has the energy sector of the S&P 500 losing 12% on a total return basis so far this year, and Buffett owns some pretty big chunks of it. Here are some of the energy names that are among the biggest threats to Warren Buffett’s Berkshire Hathaway holdings this year:

  • Exxon Mobil Corporation (XOM) — Berkshire Hathaway owns 41.1 million shares worth about $3.7 billion at current prices, but and XOM has seen its stock price plunge about 10% so far this year.
  • ConocoPhillips (COP) — Warren Buffett’s Berkshire Hathaway holds 472,000 shares in the energy giant, currently worth about about $30.6 million. COP stock is also down 10% for the year-to-date and looks to have further weakness ahead.
  • National-Oilwell Varco, Inc. (NOV) — The oil services companies are having an just as tough a time as the integrated majors. NOV is down more than 10% so far this year. That has Warren Buffett’s Berkshire Hathaway stake of 6.4 million shares down to a value of about $410 million.
  • Phillips 66 (PSX) — Energy refining and marketing can’t escape the damage done by plunging oil prices, either. Berkshire Hathaway holds about 6.2 million shares, and after a drop of more than 11% this year, the PSX stake is worth $425 million.
  • Suncor Energy Inc. (SU) — Independent oil and gas players are taking a beating in 2014 as well, with more weakness coming in the year ahead. SU stock is off more than 15% for the year-to-date, making Warren Buffett’s stake of 18.5 million shares now worth $548 million.

In addition to the roughly $5.1 billion shares worth of these energy stocks listed above, Berkshire Hathaway has even bigger exposure to energy prices through a number of wholly-owned subsidiaries. For example, Burlington Northern Santa Fe railroad — which Warren Buffett acquired in a deal valued at $44 billion in 2009 — is, among other things, a play on shale oil in the American heartland, as well as coal.

And let’s not forget Berkshire Hathaway Energy — a portfolio of utilities and transmission companies, including MidAmerican Energy, PacifiCorp and NV Energy.

Now no one is suggesting that tumbling oil prices are going to doom Warren Buffett’s Berkshire Hathaway to a terrible 2015. This vast company is far too diversified and well run for that. But tumbling energy prices could be a significant headwind for top- and bottom-line results.

BRK.B (and BRK.A if you have $225,000 to drop on a share) remain buys, no question. Just remember that the Oracle of Omaha is hardly insulated from the vagaries of the energy market.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/biggest-threats-warren-buffetts-berkshire-hathaway-brk-b/.

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