Is Chevron Corporation (CVX) the Best Stock In Buffett Stock Portfolio?

We recently compiled a list titled Buffett Stock Portfolio: Top 10 Stock Picks for 2024. In this article, we will look at where Chevron Corporation (NYSE:CVX) ranks among the top 10 stocks in Buffet's portfolio.

Warren Buffet is one of the most accomplished investors in the history of Wall Street. According to Bloomberg’s Billionaire Index 2024, the Oracle of Omaha has a net worth of $143 billion, making him the ninth richest person in the world. His wealth would have been much more had he not decided to donate most of his vast fortune to charities. Since 2006, Buffet has donated over $55 billion to various charitable organizations, with a majority of the gifts going to the Bill & Melinda Gates Foundation.

Buffet rose to prominence in 1965, after transitioning his investment firm into a conglomerate that held stakes in companies belonging to a broad range of industries. Between then and 2023, his firm earned average annual returns of 19.8%, outperforming most stock indices that delivered returns around the 10 percent mark during this period. However, this year, Buffet seems to be in a defensive mode and is currently in the news for his sell-off spree, significantly reducing his investments in several notable companies.

There have been mixed opinions about Buffet hunkering down on stocks. Edward Jones analyst, Jim Shanahan, said that the actions make him ‘concerned’ about Buffet’s outlook for the stock market and the American economy. In contrast, Daniel Ives, a Wedbush analyst, is less worried and believes that despite the selling spree, Berkshire still holds the top positions in those stocks by large margins, which should not be viewed as a ‘smoke signal for bad news ahead’.

So what will Warren Buffet do with all that cash? Andrew Bary, the associate editor at Barron’s, recently stated that the billionaire has been on the look for a major acquisition for some while now, which has so far proven elusive. He believes the Berkshire CEO may just hold the cash for some while, earn interest on Treasury Bills, and wait for potential opportunities to grab in the stock market.

Another factor that has likely contributed to Warren Buffet dumping stake in some of his top stocks is the speculation around the increase in capital gains tax. The debate on the tax rate has been on for some time now and has even become a talking point in the run-up to the presidential elections. Vice President, Kamala Harris, during a speech in New Hampshire this month, proposed to raise the long-term capital gains tax for wealthy individuals to 28%.

The current tax rate is 21% when a gain is realized. Massive gains over the long term result in a large tax. Warren Buffet invested in stocks he is currently selling a long time ago, and hence, is sitting on handsome gains. The rationale behind selling these stocks could be to capitalize on the gains as much as possible on the current low tax rate, instead of paying hefty taxes later if the rate were to be increased.

Methodology

We scanned Warren Buffet’s portfolio, as of June 30, 2024, and picked the top 10 stocks according to their stake value. The figures were sourced from the Insider Monkey Database.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Chevron Corporation (NYSE:CVX)

Stake Value as of Q2 2024: $18,553,059,728

Chevron Corporation (NYSE:CVX) is a leading American energy corporation, specializing in oil and gas exploration, production, and refining sectors. The company headquartered in San Ramon, California, is considered a heavyweight in the industry, with a market capitalization of around $300 billion. It is one of the top picks from the Buffet stock portfolio, with the hedge fund’s investments in Chevron valued at over $18.5 billion as of June 30 this year.

During Q2 2024, it missed earnings with an EPS of $2.55 against expectations of $2.93 per share. This was due to weak refining margins and significant downtime in its operations in Australia. Low margins and reduced capture rates also reduced total downstream earnings to $597 million from $1.5 billion last year. Since these results were announced in early August, Chevron’s share price has dropped 2%, reflecting investor concerns about the company’s short-term outlook.

Despite that, the company’s operations remain robust. It reported an 11% increase in production from last year, resulting in a record output in the Permian Basin. In April this year, Chevron announced that its 50% owned affiliate Tengizchevroil LLP (TCO) had commenced operations at the Tengiz oil field in Kazakhstan. Moreover, in October 2023, the company acquired Hess for $53 billion, with work expected to begin on a well in Guyana in 2025.

Strength in the US onshore operations coupled with expansion on overseas projects provide a foundation for Chevron for growth and recovery. It also offers the company the opportunity to untap new sources of revenue. Moreover, the energy demand is set to rise globally as economies continue to recover from the pandemic, which can lead to higher prices, and resultantly, a surge in revenue for Chevron.

Considering these factors, Wall Street analysts have a consensus on Chevron Corporation (NYSE:CVX)’s Buy rating with a share price upside potential of around 18%. Hedge fund sentiment around the stock is bullish as well. According to Insider Monkey’s database for Q2 2024, 64 hedge funds had investments in Chevron, up from 62 in the first quarter.

Overall, CVX ranks 5th among the Buffett Stock Portfolio: Top 10 Stock Picks for 2024. While we acknowledge the potential of CVX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CVX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published on Insider Monkey.