Warren Buffett is buying energy stocks: should you?

Moomoo Learn SG joined discussion · May 13, 2022 17:23

[Buffett made a massive bet on energy stocks]

The market is shrinking, but energy stocks are shining.

Warren Buffett's $Berkshire Hathaway-A (BRK.A.US)$ increased its position in $Occidental Petroleum (OXY.US)$ at $57.3 a share for 901,774 shares according to the latest filing from SEC on May 12, 2022.
Berkshire has bought another 5.9 million shares of OXY and cost $336 million last week.
Buffett is so enamored of the energy sector that Berkshire bought about 120 million shares of $Chevron (CVX.US)$ in Q1.

Occidental shares were up nearly 105%, and Chevron shares rose almost 42% year to date.

Source: moomoo

[Why Buffett is buying energy stocks?]

-Make money from soaring oil prices

Against the backdrop of soaring commodity prices, energy stocks are one of the immediate beneficiaries of this trend.

Oil giant Saudi Aramco on May 11 surpassed $Apple (AAPL.US)$ as the world's most valuable firm.

Source: Financial Times

Aramco stock is up over 27% so far in 2022. In March, the oil giant reported that its full-year profit last year more than doubled due to soaring oil prices.

A surge in oil prices also provided strong support for $Occidental Petroleum (OXY.US)$ 's earnings report. The company posted a record quarterly profit in Q1, 2022.

Source: moomoo

With so many factors impacting crude oil prices, geopolitical pressures, sanctions on Russia, renewed sanctions on Iran and higher oil extraction costs, it can be tough to decide which energy stock to buy in the current market environment.

Source: moomoo

-Defensive segments mayoutperform the market in a correction

Rising interest rates, higher inflation and geopolitical concerns have fueled volatility.

Energy stocks and prices have been rising as investors sell off equities in several industries, including technology, on fears of a deteriorating economic environment.

“Historically, in drawdowns of more than 10 percent, certain typically defensive segments tend to perform better than the market overall, and other typically cyclical segments tend to do worse,”the senior manager of SSGA said.

Energy stocks, particularly those that offer dividends, have been regarded as a defensive play over the past year.

[How should investors jump in now?]

If you don't know which energy stock to invest in or don't want to spend much time analyzing a stock, you may prefer funds.

You can find a variety of mutual funds and ETFs that hold energy stocks on moomoo via:

Path 1: An energy stock's quotes page > Summary > Relevance > Related Fund and Related ETF

Warren Buffett is buying energy stocks: should you?

Large ETFs in the energy sector include $Energy Select Sector SPDR Fund (XLE.US)$ , $Vanguard Energy Index Fund ETF (VDE.US)$ , and $SPDR S&P Oil & Gas Exploration & Production ETF (XOP.US)$ , offering exposure to oil, gas, energy equipment, and services companies.

Tap to know more about: Differences between Mutual Funds and ETFs

Path 2: Money Plus > Fund Ranking > All > Filter > Energy > Confirm

Do note that these energy funds on Money Plus include both conventional and sustainable energy funds. Past performance information is not indicative of future performance.

Although the energy sector is attractive, you must pay attention to risks because energy is a cyclical sector with notorious volatility. That may be a negative for energy stocks if oil demand weakens, geopolitical tensions ease and the dollar continues to strengthen.

Therefore, energy funds may be more suitable for investors who are familiar with the sector and could take a high risk.

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