Time to Copy Buffett's Buy Order?

Sometimes I'm struck by the fleeting idea that we pay too much attention to Warren Buffett's thoughts and the stocks that make up Berkshire Hathaway's (NYSE: BRK-A  ) (NYSE: BRK-B  ) portfolio. Nevertheless, from my perspective, my Foolish colleague Morgan Housel's recent news that Buffett's been actively buying ConocoPhillips (NYSE: COP  ) is a big positive.

Oh sure, Buffett may have bought it for reasons that wouldn't hold today, since as of June 30, it was reported that Berkshire owned 59.7 million shares of the Houston-based member of Big Oil. And by Sept. 30, Buffett's Conoco stash had climbed to 84 million shares, making Berkshire the company's largest holder. So, he apparently did a majority of his buying when oil prices were zooming upward, before they topped out above $145 a barrel in July.

But, while Warren and I don't travel in the same circles, I'd be surprised if he were to use a descent to $55 crude -- or even $45 -- as an excuse to lighten his Conoco load now. As you know, he practices exactly what we constantly counsel our Foolish friends to use as their investment mantra: buy and hold. And while the precipitous slide in crude has shocked the pants off energy seers everywhere, there's logic in the notion that, with all sorts of major oil and gas projects being chopped across the globe, any sort of return to economic normality risks leaving crude supplies well short of demand.

So, where Buffett has led the way by gobbling ConocoPhillips shares, it's an ideal time for Fools to follow suit at significantly lower prices. After all, ConocoPhillips' shares are currently trading about 50% lower than their 52-week high.

That being the case, there are actually several ways to approach a Big Oil component of your portfolio. For instance, ConocoPhillips gives you a skinny 5.9 times forward P/E and a 4% yield, while BP's (NYSE: BP  ) forward P/E is 6.3 times, and its dividend yield is an eye-opening 7.7%.

And then there's industry leader ExxonMobil (NYSE: XOM  ) , whose 10 times forward P/E may tell you something about the company's exalted position among its peers, despite its yield of 2.2% being less than a third of BP's. I also wouldn't rule out Chevron (NYSE: CVX  ) , the second-largest U.S.-based oil company.

The key is for Fools to realize that, despite what we might have thought last spring, energy hasn't shed its cyclicality. As such, it appears that we've been dropped into the middle of a time when buy-and-hold practitioners can build positions in some very solid companies at far less than they'd have paid not too long ago.

More than 4,000 Motley Fool investors have accorded ConocoPhillips a top-of-the-line five-star CAPS rating. Does that include your vote?

For related Foolishness:

Berkshire Hathaway is a recommendation of both Inside Value and Stock Advisor, and the Fool owns shares.

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned above. He does, however, welcome your questions or comments. The Fool has a disclosure policy.


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  • Report this Comment On November 19, 2008, at 4:40 PM, stonystonehenge wrote:

    Dear Fellow Fools.

    I love to buy and hold, BRK/B, I have never seen this ugly. I know not to bail at the bottom. Like a smal child in the back seat, are we there yet? stonystonehenge

  • Report this Comment On November 19, 2008, at 5:12 PM, GoNuke wrote:

    read the world energy outlook 2008 report:

    http://www.worldenergyoutlook.org/

    The following is a precis of a free article about the report that appeared in IndustrialInfo.com

    IEA's World Energy Outlook 2008 forecasts supply and demand for energy over the next 22 years:

    -world needs to invest $26.3 trillion by 2030, $4 trillion more than last year's estimate or $1 trillion per year;

    -world's 800-plus oil fields will experience faster declines;

    -industry to move offshore and into smaller production fields;

    -investment needed to increase oil production; Gas and oil exploration and production companies are postponing investment due to falling crude oil prices 56.48 a barrel last week;

    -even if economic growth slows energy demand will grow 1.6% a year from 2006 to 2030, an increase of 45%.

    Even if oil demand remains flat to 2030 world needs extra 45 million barrels per day of gross capacity by 2030 to offset decline in existing oil-field production -- roughly four times the current capacity of Saudi Arabia.

    When demand picks up again in 2010 supply crunch will push prices higher than 2008 peak if the current investment plans are postponed.

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