OK, how can I phrase this without being too much of a wise-guy? LOL.
We seem to be reluctant to discuss Berkshire’s (Buffett’s) moves into oil/gas. We do keep bringing up Google as a sure thing for Berk to snare.
I am vastly underweight energy but for a couple of years have directed my money that direction. Seems to me that Warren Buffett is a guy who goes where capital outlays have stalled or retreated, often some time in advance of significant change.
Comments in Barron’s
Buffett likes oil these days. Oil prices are up, but a reason he likes the stocks likely is more about how companies are spending their free cash flow. Chevron is giving more of its cash flow back to shareholders instead of investing it.
Occidental’s total shareholder yield, which can be defined as dividends and buybacks divided by a company’s market capitalization, is about 7%. Chevron’s total shareholder yield, based on the first- quarter repurchase of stock, is about 5%.
Think this is akin to tobacco stocks? There’s decades of cashflow to squeeze out of a declining industry–that is toxic and hated. Just make sure you don’t make massive investments in growth/future that wont pay out in short term.
Think this is akin to tobacco stocks?
Hmmm, I think the analogy is inapt.
Both are very much out of fashion, but there the resemblance ends.
Oil and gas are reviled, but something we can’t live without for now. A mostly livable level of toxicity on a percentage basis, much too useful and too needed for now.
It exists as a business because it has made sense and provided huge utility, even if the side effects mean it has to draw to a close relatively soon.
Tobacco is reviled, but something we can’t live with. Not a livable level of toxicity, not useful, not needed.
It exists as an industry only because of a quirk of regulatory history.
Sometimes an analogy adds insight, but I think this one is the reverse situation.
Jim
…even if the side effects mean it has to draw to a close relatively soon.
This seems to be a common, and misplaced, belief.
What has to draw to a close are emissions of methane and CO2. The former will happen by better regulation and housekeeping. The latter will happen in part by EV’s, but more so by CC&S.
Fossil fuels have too high an energy content, are too easy to transport, and too low cost to be replaced in all applications. These include industries requiring high temperatures and feedstocks for chemicals and other products.
Perhaps in the very long range, success in fusion, technology advances that permit accessing very deep geothermal energy, and other technology breakthroughs will supplant use of hydrocarbons for energy. But it won’t be “relatively soon” in my opinion.
The material supply issues, investments, ecological damages, and timetables for electricity replacing fossil fuels continue to be underestimated and somewhat swept under the rug. That doesn’t mean they don’t exist and won’t constrain its growth.
Those issues have popped up on this board before. But, somehow, they don’t seem to be discussed in any detail.
As long as I post and the response is little I’m willing to send more capital that direction. Still seems there’s far too much loyalty to SAAS stocks.