Warren Buffett just joined the US$100 billion club, as his dividend stocks have been surging back from the horrific coronavirus crisis. More recently, the man placed a big bet on Steady Eddie stocks, including Verizon and Chevron (NYSE:CVX). The latter bet paid off big-time over the near-term. At the time of writing, Buffett scored just north of a US$1.2 billion gain from his Chevron shares in less than three months. I guess that’s why we call him the Oracle (NYSE:ORCL) of Omaha!
While I don’t think it’s ever a wise idea to follow any guru, including Warren Buffett, into a stock blindly (you’ll pay a Buffett premium for doing so!), I do think some of his more remarkable quarterly moves should be treated as some sort of clue as to where the greatest value lies at any given instance.
Sure, Warren Buffett is by no means a raging bull on the stock market amid profound coronavirus uncertainties. He’s trodden carefully, as demonstrated by his lack of buying action in the first quarter and the big defensive bets he made in the second half. Despite not knowing what Mr. Market could be up to next, he remains a cautious bull.
Charlie Munger on investing through tough times As Warren Buffett’s great friend and colleague put it, you have to keep swimming, regardless of which direction the tides move. “Sometimes the tide is with us, and sometimes against. But we keep swimming either way.”
That’s one of the best analogies I’ve heard. And think those who keep swimming despite the rougher waters will be the ones that will be able to build wealth, regardless of the environment. These days, the market waters have been quite rough. Severely undervalued, beaten-down big oil stocks like Chevron and battered telecom titans like Verizon had to be seen as some sort of raft through the eyes of Warren Buffett and company.
Both dividend stocks were already so unloved that they were less likely to sink if the broader markets were to fall into a correction. Moreover, their operating cash flows were robust and supportive of their handsome dividend payouts. For a cautious bull like Warren Buffett, both plays were classic value investments.
Betting big on the commodity supercycle? Warren Buffett’s fourth-quarter bet on Chevron, I believe, is a sign that big energy is not dead yet. In fact, it’s where all the value lies. Through most of 2020, investors ditched fossil fuels in favour of green energy plays. Big oil seemed dead the moment West Texas Intermediate (WTI) prices plunged below zero. Today, oil is skyrocketing, and the major producers are likely to continue booming as it becomes more economical to turn on the taps.
Suncor Energy (TSX:SU)(NYSE:SU), Buffett’s preferred Canadian energy bet, is red-hot now — up over 90% from its unprecedented November lows — a period when I issued a massive buy signal, encouraging contrarians to back up the truck before the deep value was gone.
“With Suncor nearing a critical support level, I’d be inclined to load up on oversold shares of Suncor, as they look overdue for a bounce, especially given most of the negatives regarding a second wave and retreating oil prices are already baked into the stock,” I said.
“If Warren Buffett loved Suncor at north of $20, he must be licking his chops at the thought of buying more while they’re trading at a fraction of the price. I don’t think anything has fundamentally changed, and investors should think about getting into the name this October.”
The piece was published around the same time that Buffett backed up the truck on Chevron shares, helping him post a big gain after big oil’s recent run. While the “steal” in Suncor and other top energy stocks is gone, I still think they’re modestly undervalued for cautious bulls like Warren Buffett, who want a place to hide in the face of volatility.
The post Warren Buffett: Here’s Where the Greatest Value Lies Today! appeared first on The Motley Fool Canada.
Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications (NYSE:VZ).
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