It’s nearly impossible to take into account every single possible outcome and plan for it. It’s true for life in general and decisions like investments. So, there is always some risk involved. But if you follow good practices and do your research, you can mitigate those risks and improve your chances of success.
Warren Buffett always advocates investing in something you understand and buying good businesses. He has been partial to energy businesses for a long time. Even in 2020, when other investors would give the energy sector a wide berth, Buffett made significant investments in the sector.
And one of those investments recently made him a lot of money.
US$10 billion in under 10 weeks Warren Buffett opened a position in energy giant Chevron (NYSE:CVX) and bought a 2.5% stake in the company. That was worth about US$4.1 billion when 2020 ended. The bulk of this purchase was made in the third quarter and the rest in fourth. The company has grown well over 29% from the start of this year, making Berkshire Hathaway (NYSE:BRKa) more than a billion dollars richer from this single investment.
The oil sector had a tough run in 2020 when the lower demand pushed the prospects of “black gold” in the negative territory for the first time in history. This made a lot of investors think that the ear of fossil fuel might finally be coming to an end, and the shift to green energy might only expedite from here on.
Buffett, however, probably believes otherwise, since he also made a substantial investment in natural gas in 2020.
Canadian energy Buffett’s Canadian energy holding Suncor (TSX:SU)(NYSE:SU) saw growth similar to Chevron. The oil sands giant has grown its market value by about 29% from the beginning of the year. It’s still a far cry from its glory days or even its pre-pandemic valuation, but the company might finally be on the recovery track. If the energy is a sector can carry this growth momentum and the market isn’t flooded with surplus again, Suncor might emerge as a decent recovery and growth stock.
The company lost a lot of investor attention when it slashed its dividends. The company broke its dividend-growth streak of 18 years and chose sustainability over pride. It might have difficulty attracting as many dividend investors back without a stellar history backing it up. Still, it’s difficult to fault the company for making the pragmatic choice. Plus, it also means that the Suncor stock has both capital and dividend growth potential.
Foolish takeaway Warren Buffett hasn’t exited his Suncor position yet and might stick with it for a while yet. If the long-term prospects of the company are strong, Buffett might make a decent sum on this investment as well. If Suncor’s dividend history makes it a less-than-ideal holding for you, several other stocks can help you leverage the energy sector’s recovery and growth.
The post Take Pointers From Warren Buffett: The Oil Bet Is Paying Off appeared first on The Motley Fool Canada.
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2021 $225 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares).
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