You might have noticed that Warren Buffett isn't buying many stocks these days. In 2023, the legendary investor was a net seller of stocks. Meanwhile, the cash position for Berkshire Hathaway has grown to nearly $168 billion.
Don't think for a second that Buffett isn't still interested in the stock market. Here's his main investing focus right now -- and how it could make him billions.
The sector that's energizing Buffett the most
In the fourth quarter of 2023, Buffett bought only three stocks. None were new positions, and two of them operate in the energy sector -- Chevron (CVX +0.05%) and Occidental Petroleum (OXY +1.82%).
Buffett hasn't just nibbled at these two oil stocks. Chevron ranks as the fifth-largest position in Berkshire's portfolio, with a stake currently worth nearly $18.9 billion. Occidental holds the No. 6 spot, with Berkshire owning close to $15.3 billion of the company's shares.
NYSE: CVX
Key Data Points
Berkshire first initiated a position in Chevron in the fourth quarter of 2020. The stock had been beaten down considerably at the time due to the impact of the COVID-19 pandemic on travel.
After some buying and selling over the next several quarters, Buffett went big in the first quarter of 2021, purchasing 121 million additional shares. Although Berkshire trimmed its position in Chevron beginning in 2022 Q4, the conglomerate boosted its position in the oil and gas producer by more than 14% in 2023 Q4.
Buffett's interest in Occidental began in 2019. However, by mid-2020, he had exited Berkshire's position completely.
The Oracle of Omaha didn't stay on the sidelines with Oxy for too long, though. He began buying the stock again in the first quarter of 2022 and has steadily added to the position in most of the quarters since then.
NYSE: OXY
Key Data Points
More billions for the multibillionaire?
What does Buffett like so much about Chevron and Occidental? I suspect that he thinks Berkshire will make billions of dollars from both investments.
For one thing, these two stocks are valued attractively, while the broader market is trading at a premium. Chevron's forward earnings multiple is 11.6x, while Occidental's shares trade at 14.6 times forward earnings. As important as valuation is to Buffett, though, it's the growth prospects for these two companies that probably appeal to him the most.
Buffett holds Occidental CEO Vicki Hollub in high regard. He stated in a CNBC interview last year that Hollub is "extremely competent" and that "she understands oil."
Keep those praises in mind as I mention what Hollub recently predicted. In February 2024, she told CNBC that the world will face a supply shortage of oil by the end of 2025.
There's a direct correlation between oil prices and the share prices of both Chevron and Occidental. If Hollub is right that a supply shortage is on the way, both stocks will likely soar as oil prices rise.
But Buffett is also looking beyond the near future. He knows that climate change is a serious concern and recognizes that the demand for oil and gas isn't likely to decline. As a result, he's supportive of efforts to develop and implement carbon capture technology.
Occidental has invested heavily in direct air capture, a method of sucking carbon dioxide out of the atmosphere. Hollub told NPR a few months ago that "there's no reason not to produce oil and gas forever" if her vision for carbon capture pans out.
Chevron is focusing on carbon capture, as well. The giant oil company has poured money into several major projects to build carbon capture facilities and has invested in small carbon capture companies including Carbon Clean and Carbon Engineering.
Should you buy Chevron and Occidental, too?
Few investors will make billions of dollars by investing in Chevron and Occidental like Buffett. However, both stocks are great picks, even if you're not a billionaire.
Whether or not Occidental CEO's prediction of an oil supply shortage within the next two years is correct, I expect oil prices will rise over time; so should the share prices of both Chevron and Oxy. I'm also, like Buffett, cautiously optimistic about the potential for carbon capture technology.
Income investors should especially find Chevron attractive. With a dividend yield of 4.4%, the stock will pay you handsomely to wait for good things to come.
