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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Sean Collett who wrote (74509)	12/11/2023 6:07:16 PM
From: Harshu Vyas	Read Replies (1) \| Respond to of 78532

First sentence is bang on. Buffett's mentioned enough times in recent years that OXY is a bet on long-term oil prices. In the past, with commodity-based businesses, he's refrained from alluding that the commodity will perform well and, rather, it's the underlying business that he likes. And oil does make sense - markets think peak oil demand will be met by 2030 so valuations for oil companies haven't really taken off despite unbelievably profitable operations. It's also worth noting the market's been wrong - remember "peak oil supply" during the noughties? I think supply will pull oil prices upwards and demand will stay constant. Why doesn't Buffett just buy oil instead? (In the past, he's done it with commodities he liked.) Well, it probably won't yield the same return as OXY. OXY enjoy scale and can comfortably leverage their current operations to buyback stock, pay down debt, increase their dividend and continue to acquire aggressively. The expected returns are stupidly high (and the risk quite fair) compared to buying barrels of oil - no matter how you structure it. OXY can also maintain a sustainable, high ROE for a long time. You mentioned tensions - tensions will only rise from here (at least, in the short-term). In the short-term, since we're speaking about it, oil could potentially slide more - China's struggling, US production increasing, supply chains improving... but this is a guess. I'm not an energy trader. I think OXY is Buffett's best holding currently It's also worth noting that he had warrants that allowed him to buy roughly 10% of the float at $59. (I don't know whether he's exercised them - poor analytical skills from me. I imagine he'd wait until the share price was much higher, though.) Problem with buying other smaller or non-E&P oil companies is that smaller oil companies need a higher break-even oil price. As for non-E&P companies, with the exception of XOM and a few others, most management are taking the same approach Hollub is and refraining from drilling aggressively. That means the drillers suffer, as do the midstream companies, as do the refiners... inflation just hasn't worked for them. I suppose container shipping companies disguised in the oil industry that were smart enough to lock in high prices during the supply chain crisis will do ok. Companies that own oil are valuable. Companies that own lots of oil and only have to drill a "minimal" amount (in terms of their total assets) because of their scale are incredibly valuable. I suppose value investor can try and sift through small E&P companies in the hope that they get bought out - but they often have lots of debt and no equity flows in that direction. (I'm guilty of this.) Imo, if you're buying oil just jump on the bandwagon and copy Buffett. So many hfm's buy obscure oil companies that I think have dodgy management and dodgy accounting practices - I've come across a few and I'm not a great security analyst so I imagine there's many more that I've missed! TLDR - buy OXY, copy Buffett, don't be too clever! I've bought a little - works as a hedge to my CCL position. I guess I don't fear the leverage employed in either company.