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Warren Buffett, BlackRock, and Goldman Sachs Find Energy Stocks Irresistible

March 18, 2023
minute read

This month has seen some of Wall Street's greatest names pile into areas of value in shares, despite the worst banking collapses since 2008.

Energy equities are emerging as a clear favorite among the likes of Berkshire Hathaway, BlackRock, and Goldman Sachs.

Warren Buffett's investment business has resumed purchases of Occidental Petroleum, last year's-performing stock in the S&P 500 index, after a five-month pause.

Berkshire has invested more than $11 billion in the company in just over a year, with the most recent $467 million acquisition announced this week. It also made a $20 billion investment in Chevron last year.

BlackRock, the world's largest asset manager, likes energy equities, citing the possibility that oil and gas prices would climb this year due to supply restrictions, according to strategists led by Wei Li in a report issued this week. The business also supports healthcare stocks because of their "defensive features in a downturn," as well as financials since they benefit from increased interest rates.

David Kostin, Goldman Sachs' top US equities strategist, stated last month that it was time to focus on value companies in industries such as energy and healthcare. In February, the American bank raised the European oil and gas major Shell to a buy recommendation, forecasting share rises of up to 40%.

"Rates are trending up, so we're searching for value; that'll be the strategy and the playbook for this year," Kostin said at the time, alluding to the Federal Reserve's interest rate rises over the previous year.

"There's a significantly bigger percentage of earnings coming from energy relative to its market weight, like 10% of earnings in the market and maybe 5% of market size, so earnings are likely to be considerably higher there," he added.

Buffett loves Occidental because of its domestic presence and the fact that it is paying off debts, delivering dividends, and repurchasing shares, according to Vicki Hollub, CEO of the oil business. Berkshire received regulatory clearance in August to boost its Occidental holding to 50%, indicating that the company is not done expanding its position.

Despite a drop in oil prices, Buffett's business has maintained its optimistic stance on energy companies this month, while BlackRock has also restated its fondness for the industry. Crude prices have fallen in recent weeks on expectations that bank failures in the United States may cause an economic downturn, reducing energy demand.

West Texas Intermediate oil, the US benchmark, plummeted below $70 a barrel this week, reaching lows not seen since 2021. The S&P 500 Energy Index has fallen around 12% this year, following gains of 59% and 48% in 2022 and 2021, respectively.

The present bout of financial-market instability is the result of a recent run of bank failures. Silicon Valley Bank failed on Friday, becoming the second-largest bank failure in history. This occurred mere days after the closure of Silvergate Capital and was immediately followed by the closure of Signature Bank.

Economic uncertainty, exacerbated by the financial crisis, has resulted in an increase in oil market volatility. The CBOE Crude Oil Volatility Index is set to rise by the most in over a year.

Adan Harris
Managing Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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