Warren Buffett isn't all that different from any other investor in several key ways. Most importantly, he wants the stocks he buys to perform well. But as is the case for investors without multibillion-dollar fortunes as well, not every stock he buys always does precisely what he wants.
In fact, several of the Oracle of Omaha's biggest holdings aren't performing well these days. Why has Buffett invested over 18% of Berkshire Hathaway's (BRK.A 0.24%) (BRK.B 0.38%) in these three recently underperforming stocks?
Down in an up market
The main U.S. stock market indexes are up so far in 2023, as is Berkshire Hathaway's share price. However, some of Buffett's favorite stocks are down.
Shares of Bank of America (BAC 0.90%) have been hit especially hard, sinking close to 15%. The stock has been negatively impacted by a banking crisis that featured the failures of several U.S. regional banks.
NYSE: BAC
Key Data Points
Chevron's (CVX +0.00%) stock decline is neck and neck with BofA's. While shares of the oil and natural gas giant soared by 53% last year, they've tumbled by nearly 14% so far in 2023.
The main problem for Chevron is that oil prices have declined somewhat. It also hasn't helped the stock that fears have increased that a recession is coming. Such an economic downturn could cause demand for oil and natural gas to fall even further.
NYSE: CVX
Key Data Points
Occidental Petroleum's (OXY 0.91%) share price is holding up a little better than Chevron's. It's still down close to 6%, though, for the same reasons that caused Chevron's decline.
NYSE: OXY
Key Data Points
Why Buffett owns these stocks
Buffett obviously likes all three of these companies. Bank of America ranks as Berkshire Hathaway's second-largest equity holding, making up 8.7% of its total portfolio. Chevron is the fifth-largest at 6%. Occidental comes in at No. 7, comprising 3.7% of the conglomerate's stock portfolio.
And while Buffett exited or trimmed his positions in several bank stocks in the first quarter of 2023, he bought even more shares of Bank of America. He also increased Berkshire's stake in Occidental. However, Buffett did sell roughly $6 billion worth of Chevron shares in Q1.
It's not hard to figure out why the legendary investor is a fan of BofA and Occidental. He has praised the CEOs of both companies. Buffett also no doubt likes the valuations of both stocks. With a forward earnings multiple of less than 8, Bank of America is cheaper than it has been in quite a while. Occidental trades at only 9.8 times expected earnings.
Why did Buffett decrease Berkshire's position in Chevron? Perhaps the best guess is that Buffett was simply rebalancing Berkshire's portfolio. Chevron has been a big winner for the conglomerate in a relatively short period.
Should you own these beaten-down stocks, too?
Your investment goals and risk tolerance are almost certainly different from Buffett's. Therefore, you shouldn't buy or sell stocks just because he did. However, I think that many investors might want to consider owning these beaten-down stocks.
Bank of America's share price has been dragged down by the turbulence in its industry, but the institution itself appears to be as strong as ever. I predict that the stock will rebound in a major way once the dynamics in the banking industry and the overall economy improve.
Sure, a recession would probably create headwinds for Chevron and Occidental, and cause their stocks to struggle. But with a dividend yield of nearly 4%, Chevron remains an especially attractive stock for income investors. I suspect that Berkshire's ongoing purchases of Occidental shares could bolster the stock. More importantly, both Chevron and Occidental should benefit from increasing energy demand over the next decade.
