The world's 4th richest man just took a stake in the world's largest publicly traded company. Should you buy along with Buffett?
Warren Buffett is dumping nearly half his shares of one oil giant and is taking a huge bet on another.
New regulatory filings released Thursday show that Buffett's Berkshire Hathaway bought 40.1 million shares – about $3.5 billion worth – of Exxon Mobil. At the same time, he sold 44% of his stake in ConocoPhillips. Still, his remaining 10.6 million shares are worth over $770 million.
Buffett's purchases occurred in the second quarter of the year. However, the US Securities and Exchange Commission gave him special permission to defer his filings.
(CNBC tool: Berkshire Hathaway Portfolio Tracker)
Interestingly enough, since the start of the second half of the year, ConocoPhillips's 20% returns have far outpaced Exxon Mobil's 4%. Exxon Mobil remains the world's largest publicly traded company with a market cap of nearly $413 billion, dwarfing ConocoPhillips market cap of $89 billion.
"It's a really confusing call," says CNBC contributor Gina Sanchez, founder of Chantico Global. "ConocoPhillips, even though it has outperformed Exxon Mobil, is trading at a lower forward P/E (price-to-earnings ratio)."
Price-to-earnings multiples are often used to compare stocks in similar lines of business, with lower P/E ratios viewed as being cheaper. On a forward-earnings basis, ConocoPhillips has a P/E of 11 whereas Exxon Mobil is trading at 12 times next year's earnings.
As well, other valuation matrices make Buffett's decision puzzling for Sanchez.
"[ConocoPhillips] also has a higher dividend yield," says Sanchez. "In fact, Exxon Mobil has the lowest dividend yield of the entire peer group and they always have. And, if you look at management, ConocoPhillips has just been hitting on every commitment they have made since they started a strategic overhaul several years ago."
"It's a confusing move," says Sanchez.
However, CNBC contributor Andrew Busch, editor and publisher of The Busch Update, sees this as a highly calculated manoeuver.
"To me, this is a classic Warren Buffett value play," says Busch. "I think what he's trying to do is say, 'Look, these are two energy companies almost playing in the same sandbox. One's had a big run-up this year of about 28%. Glad to take half-profit on our position. That works really well. And, let's pile those profits back into an underperforming company, Exxon Mobil.'"
Yet Busch believes Buffett has an advantage over other investors, a charge that Sanchez disputes.
To see Sanchez and Busch on what they think is behind Buffett's latest move, watch the video above.
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