Like millions of Americans, I watched the moon obscure the sun on Monday (which, ironically, comes from the phrase “lunar day”). The next full solar eclipse visible across much of the United States will not occur until 2045.
When such rare opportunities arise, take advantage of them. I think that’s what Warren Buffett does – more from an investing perspective than an astronomical perspective. Buffett is making what could be a once-in-a-lifetime bet on two stocks.
Buffett’s big bets
Over $29 billion Berkshire HathawayThe portfolio is invested in two similar stocks. Chevron (NYSE:CVX) is Berkshire’s fifth largest position. Occidental Petroleum (NYSE:OXY) comes at some point behind it. Both companies are major oil and gas producers.
Buffett continues to buy shares in Chevron and Occidental. In the fourth quarter of 2023, he bought only three stocks for Berkshire’s portfolio. Both oil stocks were part of the group. The obvious question is: why?
Perhaps Buffett expects oil prices to rise soon. But even if he does, I don’t think that’s the main reason for Chevron and Occidental’s aggressive buying. Although Buffett’s nickname is “the Oracle of Omaha,” he knows he cannot predict the future. He stated this in his recent letter to Berkshire Hathaway shareholders, writing: “No one knows what oil prices will do over the next month, year or decade.”
Instead, Buffett is making a calculated bet on two things with his investments in Chevron and Oxy. First, he believes demand for oil and gas will remain strong despite increasing use of renewable energy. Second, he believes carbon capture technology could be game-changing. The former is not a one-off bet, but the latter is.
How much could these bets pay off?
The idea behind carbon capture is that carbon dioxide emissions can be captured and stored. There are also some uses for carbon dioxide, including injection into oil fields to improve oil production.
Occidental has clearly highlighted its investments in carbon capture and storage technologies. The company is particularly focused on direct air capture, an approach that extracts carbon dioxide from the atmosphere. Chevron is also investing heavily in carbon capture. The giant oil and gas producer hopes to capture 25 million tons of carbon dioxide annually by the end of this decade.
ExxonMobil Projects estimate carbon capture and storage could be a $4 trillion business by 2050. Companies in industries like cement production (the world’s second-largest carbon dioxide emitter) could spend big money capturing their carbon emissions and storing them underground.
But for Chevron, Occidental and other oil companies, there’s an even bigger win: They can stay in business indefinitely. Occidental CEO Vicki Hollub wants to sell oil that has net zero carbon emissions. Last year, she told NPR, “If it’s going to be produced in the way that I’m talking about, there’s no reason not to keep producing oil and gas forever.”
Should you also buy Chevron and Occidental?
If carbon capture reaches its potential, Buffett’s big bets on Chevron and Occidental should pay off big. Should you buy these stocks too?
Before you risk your hard-earned money, understand that carbon capture is not yet a fully proven technology. It’s possible that carbon capture won’t be able to scale as much as it would need to to become the multi-trillion-dollar market that ExxonMobil predicts.
Still, I think Chevron and Occidental are great stocks for investors willing to take on the risk of carbon capture. And while Buffett is right that no one can know for sure what oil prices will do, I wouldn’t be surprised if rising oil prices push both of these stocks higher over the next few years.
Should you invest $1,000 in Chevron now?
Before buying Chevron stock, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think this is The 10 best stocks so investors can buy it now… and Chevron wasn’t one of them. The ten stocks that made the cut could deliver huge returns in the years to come.
Stock Advisor provides investors with an easy-to-understand roadmap to success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor The service has more than tripled the returns of the S&P 500 since 2002*.
Check out the 10 stocks
*Stock Advisor returns from April 8, 2024
Keith Speights has held positions at Berkshire Hathaway, Chevron and ExxonMobil. The Motley Fool has positions in and recommends Berkshire Hathaway and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Warren Buffett makes a one-time bet on two stocks. Should you? was originally published by The Motley Fool