Berkshire Hathaway Inc reported a stake in Exxon Mobil Corp as Warren Buffett’s company disclosed its largest new holding since International Business Machines Corp (IBM) in 2011.
Buffett’s company owned 40.1 million shares of the world’s biggest oil company Exxon on Sept. 30, Omaha, Nebraska-based Berkshire said on Thursday in a regulatory filing.
Berkshire has benefited this year as its stock picks rallied along with the broader market, affirming a strategy of favoring equities instead of bonds amid near record-low interest rates. Buffett, 83, has tracked Exxon and bought its stock in the past, holding a stake in the Irving, Texas-based energy producer as recently as 2011.
Exxon Mobil “is undervalued, in his opinion, and pretty much being ignored by the market,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business, who has taken students to meet Buffett in Omaha.
“He knows the company. He knows it well,” Kass said.
Exxon had advanced 7.7 percent this year through Thursday’s close in New York, trailing the 26 percent surge in the Standard & Poor’s 500 Index.
Exxon, which traces its roots to the 1880s and John D. Rockefeller’s Standard Oil Trust, is among the most efficient major international energy producers, spending US$19.27 to find the equivalent of a barrel of crude last year, according to data compiled by Bloomberg.
That compared with US$21.48 in per-barrel costs for Chevron Corp, the second-largest US oil producer, and US$22.66 for London-based BP PLC.
Exxon boosted oil and natural-gas production by 1.5 percent during the third quarter, reversing a two-year stretch of output declines. Net income for the period dropped by 18 percent to US$7.87 billion as rising crude prices that benefited the company’s oil-production business squeezed margins at Exxon’s refineries.
Buffett, Berkshire’s chairman and chief executive officer for more than four decades, has had successes and blunders betting on energy. He booked profits in 2007 as he sold stock in PetroChina Co after the shares rose more than eightfold since Berkshire’s US$488 million investment in 2003.
In 2009, Berkshire posted its worst quarterly loss in at least two decades, fueled by a charge on the decline of oil producer ConocoPhillips. Buffett said he made a major mistake investing in the company with oil prices near their peak.
Berkshire cut its stake in ConocoPhillips by 44 percent in the three months ended Sept. 30 to 13.5 million shares, Thursday’s filing showed.
Buffett disclosed two years ago that he had spent more than US$10 billion accumulating shares of IBM.
TOO MUCH CASH?
Buffett could have been drawn to Exxon because he hasn’t been able to find a big acquisition recently, causing cash to accumulate at his company, said the University of Maryland’s Kass. The investment also could be beneficial if it is still in the portfolio once Buffett no longer leads the company.
Stock in the energy company “certainly does a lot better than sitting in US Treasury bills,” Kass said. “This is a conservative, safe stock — a nice position for whenever a successor takes over.”