Legendary investor Warren Buffett is a huge fan of one company based in Houston, Texas. This company is currently the fifth-largest holding in his publicly traded portfolio at Berkshire Hathaway. Last quarter, he bought 3.4 million more shares -- one of only a handful of purchases he has made over the last 90 days. Looking ahead, it's possible he'll buy even more shares before the year is finished.
Warren Buffett loves this iconic Texas business
Warren Buffett began buying shares of Chevron (CVX 0.10%) in late 2020 just after the COVID-19 flash crash. He started with around 48 million shares. But the following quarter, he cut his stake by nearly 50%. In the back half of 2021, however, he started building up his stake again, culminating in a giant 121 million share purchase in the first quarter of 2022.
Since then, Buffett has consistently trimmed and added to the position over time. After a small purchase last quarter, Berkshire Hathaway is now reporting an ownership of around $17.5 billion -- roughly 7.7% of Chevron's entire market capitalization.
NYSE: CVX
Key Data Points
Why is Buffett so bullish on Chevron? Back when Buffett first began buying Chevron stock back in 2020, oil prices were only around $35 per barrel. In early 2021, when Buffett suddenly slashed his stake by over 50%, oil prices were hovering around $60 per barrel. When Buffett began rebuilding his stake later that year, however, oil prices had surged even higher to nearly $80 per barrel. So correlating Buffett's purchases prices with oil prices isn't as revealing as you'd guess. In fact, some of Buffett's biggest acquisitions occurred when oil prices were above $90 per barrel in 2022.
Since the start of 2022 -- the year Buffett massively increased the size of his Chevron investment -- Chevron stock has largely moved sideways, massively underperforming the market. The stock's 4.3% dividend yield has helped boost its overall performance. But all in all, Chevron has been a laggard in Buffett's portfolio. Why, then, did Buffett buy even more shares last quarter? For the same reason he might buy even more shares this quarter: Chevron stock looks surprisingly cheap.
Chevron looks like a compelling value stock
It's not easy finding value in today's market. The S&P 500 trades at nearly 31 times earnings -- well above its historical trading range. That average has been dragged higher by high-growth tech companies that have seen their valuations soar. With roughly $350 billion in cash on the sidelines, it's clear that Buffett isn't seeing much value in the market either. Otherwise, it would be his fiduciary duty to put that money to work.
While cyclical stocks exposed to commodity markets can be challenging to value on price-to-earnings multiples alone, Chevron stock is trading at just 19 times earnings. That's a sizable discount to the market overall, especially when considering Chevron's hefty dividend. Cyclical stocks can often appear cheap when they're near their peaks, as the market can lower their valuation during times of plenty. But oil prices have been on a multi-year slide. In 2022, oil traded at nearly $120 per barrel at its peak. Today, oil prices are under $60 per barrel.
With rising geopolitical tensions, it's a surprise that oil prices are so low. But rising inventories and production throughout many major producing countries have kept supply high, a situation that is expected to persist into 2026. "That is in large part due to the accelerated unwinding of extra voluntary production cuts agreed in 2023 by eight OPEC+ countries (Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria and Oman)," writes Toril Bosoni, an oil expert at IEA. "Following five years of production restraint, OPEC+ is now on track to boost output by an average of 1.4 mb/d this year and by a further 1.2 mb/d in 2026."
If you're willing to look beyond the next 12 months, however, investors could be locking in a compelling valuation for one of the most efficient capital allocators in the oil and gas industry. It's a classic case of needing to buy low when conditions seem unfavorable. It could take time for this bet to pay off, but Buffett seems to be not only sticking with Chevron but increasing his bet size as we advance toward the end of 2025.
