Matt DiLallo, The Motley Fool
5 min read
In This Article:
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Warren Buffett has made bold bets on the oil market by investing in Chevron and Occidental Petroleum.
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Chevron expects to produce an additional $9 billion in free cash flow next year even if oil prices fall.
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Occidental expects to generate an additional $1.5 billion in free cash flow by 2027 from non-oil sources.
Warren Buffett's company, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), has invested in dozens of stocks. Its portfolio is currently worth over $278 billion.
Two of those stocks stand out as no-brainer buys right now: Chevron (NYSE: CVX) and Occidental Petroleum (NYSE: OXY). The oil stocks currently trade at lower valuations. With several upside catalysts ahead, they look very attractive these days.
Berkshire Hathaway has made a pretty outsized bet on the oil market. Buffett's company holds 6.8% of Chevron's outstanding shares and 26.9% of Occidental's stock. Those positions are worth $17.7 billion and $12.2 billion, respectively. They are Berkshire's fifth and sixth largest holdings at 6.3% and 4.4% of its investment portfolio.
Buffett's company invested in these oil stocks because they provided Berkshire's portfolio with upside exposure to oil prices. Unfortunately, that trade hasn't panned out over the past year as oil has declined, weighing on the value of these oil stocks:
It's anyone's guess where oil prices will go next. The Trump administration's tariff plan was the big downside catalyst in crude prices earlier this year. The market feared the initially high rates would slow the global economy and decrease oil demand. However, with tariff pauses and trade deals, the impact likely won't be as bad as feared.
Meanwhile, supplies could become an issue given the escalating conflicts in the Middle East and between Ukraine and Russia. Crude prices could soar if tensions continue to rise and attacks spread to oil infrastructure.
Crude prices will continue to play a major role in the performance of oil stocks like Chevron and Occidental. However, both companies have major potential upside catalysts unrelated to oil prices.
We'll start with Chevron. The oil giant has completed several major projects recently, including the Future Growth Project in Kazakhstan and Ballymore in the Gulf of Mexico (also known as the Gulf of America in the U.S.). These and other initiatives position Chevron to generate an incremental $9 billion in free cash flow in 2026 at $60 per barrel of oil (crude is currently around $75 per barrel). That will give Chevron more money to return to shareholders via dividend increases (it has raised its payment for 38 straight years and at a peer-leading rate over the past decade) and share repurchases (it's targeting $10 billion to $20 billion annually).
