Buffett’s Buying Energy: Should You?

The energy sector has been crushed since crude started declining from its record high of $147.27 in July to around $57 today.

Suddenly, what was “hot” was “not.”

Investors raced for the exits and nearly all energy and energy-related stocks took a beating.

That includes shares of the “big boys”- Exxon (XOM), Chevron (CVX) and ConocoPhillips (COP).

Berkshire Beefs Up Energy Stake

On Friday, it was revealed that Berkshire Hathaway has been accumulating more shares of ConocoPhillips.

From the AP:

Friday’s filings reveal that Berkshire’s stake in ConocoPhillips grew from 17.5 million shares in March to 59.7 million shares in June and about 84 million in September.

This news shouldn’t come as any surprise to those who follow Berkshire Hathaway and Warren Buffett. A few months ago, Buffett was on CNBC and could not talk about the ConocoPhillips holding- which meant that he was either selling or buying.

It didn’t take a genius to figure out he was buying. At the time, the stock was trading around 5 times forward earnings. Even with the drop in crude, COP is still a cheap stock and is trading near its 52 week low.

Buffett knows energy demand isn’t going to go away tomorrow so he’s adding to his position right now- while it’s still cheap.

The Energy Sector Is At Multi-Year Lows

The S&P Energy Index is trading at about 6 times earnings- which is the lowest the sector has been since 1996. Remember how out of favor it was then?

Yet, the earnings are still there. Lowered crude prices will help with refining margins. The big integrated companies will no longer see record profits- but they’ll see healthy earnings (which is more than most sectors right now.)

The recent sell-off was irrational. But it presents investors with an opportunity.

Buffett is seizing the day. If you don’t already own energy stocks, now might be a good time to take another look at the sector.