Buffett Increases Stake in COP - Smart Move! 25 comments
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The wires are reporting that Warren Buffett's Berkshire Hathaway (BRK.A) has increased its stake in ConocoPhillips (COP) to 84 million shares, or close to 6% of the company.
ConocoPhillips has contracted from $90 earlier this year to under $50 and is now currently yielding around 4%. COP should earn close to $12/share in 2008 for a current P/E of 4 (that is not a typo). When was the last time a quality company like COP traded with its yield equal to its P/E? I have disagreed with some of Buffett's consumer related picks in the past, but this choice was excellent (and not just because I own it).
The world's governments are doing their best to reflate the planet's economy. They will either be successful, in which oil will come back strong, or, will all fall into the economic abyss and I'm not sure at that point it matters what investments you have other than perhaps cows, goats, a catfish pond, a garden, and a couple hunting rifles.
Besides COP's strong U.S. presence, its positions in natural gas, its stake in LukOil (LUKOF), and its many ongoing international projects bold well for the future. In addition, Jim Mulva is simply one of the best CEO's in the oil patch. He is known in the international oil community as a problem solver, an easy guy to work with, and has a reputation for not being as arrogant as most U.S. oil company CEOs are.
I hope Buffett is in COP for the long term, as I am. Railroads and oil companies - stick to em Warren. I just wish you and Charlie would come out strong and lend your names, influence, and perhaps even your money to support a strategic, long-term, comprehensive energy policy like this:
http://thefitzman.blogspot.com/2008/08/strategic-long-term-comprehensive-us.html
That would be the single best investment you could make in the U.S., and perhaps the best insurance policy you could take out on the companies that Berkshire owns. If the U.S. doesn't fix its energy crisis, all stocks will do badly, including BRK.A.
Disclosure: The author owns COP.
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This article has 25 comments:
> jack
van Altendorf: well, yes, there is certainly some political risk doing business in russia - just ask BP or XOM. that said, i believe alot of the risk of doing business in russia has been increased during the bush administration due to the belligerent actions of the US foreign policy. did you know that after the collapse of the soviet union, in a meeting with clinton administration, russia actually asked to join NATO? the stunned clintonites, taken completely by surprise (understandably), declined the suggestion and let it go. enter bush. he supports a puppet in georgia and says he wants to put missiles in poland to "protect against iran". please. terrible, terrible moves. what did they expect russia to do in response? well, they found out. now russia is even more convinced it needs to use its energy power and influence (bad). look at the effect this has had on the chevron's caspian operations for example. the idiots at the wall street journal mocked russia's military performance in georgia by saying the russian missiles couldn't even knock out the BTC pipeline (through which chevron passes oil the EU). but they missed the point. what russia was saying is that hey, we can knock out this pipeline ANY time we want to (the missiles landed within 10 yards of the pipe). now, on the other hand, i see some reasons to be optimistic. sarkozy, speaking for the EU, has asked for a moratorium on new missile deployments - a smart move. obama, i believe, was aghast at US policy toward russia and will begin to try to mend the fence. certainly, i don't underestimate russia. at the same time, why overtly anger them? they are the world's largest oil exporter and owns the world's largest natural gas reserves, and sit right next to china. so, they will be a power to reckon with. wrt COP, everything i have seen so far in the relationship with LukOil has been positive. Mulva handles relationships well, and allows LukOil access to COP drilling and technology and production capability in return for access to reserves and income. the LukOil has been, still is, and will continue to be (IMHO) a mutually beneficial relationship that each partner will continue to enhance going forward. naive? perhaps. reason to be optimistic about their future - yes.
investor88: oh yeah, financial storm is right. however, as i said in the article, we're either going to come out of this, or not. if we do, those investors who assumed risk and bought energy while it is deeply discounted will make millions. if we dont come out, not sure it matters where your money is. what is "safe"? so, i'd definitely take a portion of your investment dollars (certainly not all), and invest in energy stocks that pay nice safe dividends. hunker down, and wait. dont buy all at once, but take advantage of the panic de-leveraging.
john s. gordon: just where do US oil companies invest? COP's LukOil investment, like BP's, has almost entirely paid for itself already. from here on out, it's gravy on top. everyone the US deals with wrt oil are thugs: saudi arabia (9/11 perpetrators in-spite of the bush marketing campaign), iraq, iran, venezuela. however, part of the "thuggery" is in response to US aggression and our apparent arrogance that these countries MUST give the US access to their oil at cheap prices. if they don't, we threaten military action. a much better, moral, and economically sustainable approach would be a long-term, strategic, comprehensive energy policy to control our own destiny:
thefitzman.blogspot.co...
the bush administration's failure to understand this, and adopt such an energy policy, has done nothing but strengthen these thugs, led to $145/barrel oil, and put US economic and national security at great risks. we cannot continue this lunacy. my big hope is that obama "gets it" and will take appropriate action. i am still lobbying them strongly against windfall profits taxes (which would hurt US supply). indications are that they have softened on this and merely want to role back the subsidies that big oil currently enjoys. i am fine with that. their profits prove that subsidies are not needed. this money should go to building out nat gas trucks/autos, nat gas refueling infrastructure, wind, and solar.
longoil: yeah, i think buffet's moves into oil and trains mean they are starting to get the long term impact of oil. what i don't understand about warren and charlie is why in the world they aren't more outspoken advocates of an energy policy? why don't they support pickens? perhaps nobody has more to lose if the US economic sinks into the abyss than does buffet and berkshire. so, as i said in the article, why in the world wouldn't they protect their assets (and alot is consumer oriented....) by using their influence so prod the US government into adopting an intelligent, strategic, long-term, and comprehensive energy policy. our economy (and thus our equity markets) simply do not have a chance unless we do so. look at the monetary situation these days. check out my question (and answer) in paul kedrosky's recent article on gold:
seekingalpha.com/artic...
question: what would the price of gold be if the US backed all its currency by gold at 1:1: answer: price of gold would be over $10,000 oz. what does that tell ya? and that is before the current bailout printing presses. surely warren and charlie must recognize the consequences of, as pickens says, the largest transfer of wealth (the US to oil producers) in the history of the world. why do they not use their influence to help stop it? sure wish i could ask him that question on CNBC and hear the answer....
Lukoil was a great investment and will continue to make money for years to come IMHO. Risk? yes but no more than investing in some states within the U.S. where taxes seem to change on a monthly basis. Or where a windfall profits tax seems to roll off the tongues of many! Oh oh, getting close to politics! I'll close.
Go COP, Go CNG for cars/trucks, Go Nukes! And go Red Raiders! Guns Up!
I am also surprised that Warren Buffet is not supporting the Pickens plan.
You would think since he owns a sizable chunk of GE (who makes the turbines for T. Boone's wind farms) that he would be a huge supporter. I suspect Warren is very conservative at heart and sees much alternative energy as another bubble as illustrated by the 80 to 90% recent collapse in ethanol stocks and the hype around the hydrogen economy. Remember this guy makes billion dollar decisions based on his gut feeling from one page summaries and to look at alternative energy in the proper light you need read hundreds of pages to get a proper picture. I don't think he has done that.
Now that Pickens's TV spots seemed to have stopped, his wind farms are on hold his message of energy independence is fading away by the wayside (unfortunately) with the $147 oil.
the 145/bbl oil was not done by the ruuskies, it was done by our own masters of the universe on wall st using 30/1 leverage (thanks for the catastrophy, goldman sacks). musical chairs anyone?/
> jack
warrenbuffettstocks.bl.../
i still cannot believe that pass that beat texas, but i loved it! that said, i will stand by my georgia tech yellowjackets and hope they beat miami thursday night.
longoil: yeah, it's a mystery (conspirarcy?). i mean why would NBC not run pickens' commerical (at first...) when GE owns NBC and as you pointed out provides the turbines?! very weird. btw, there is nothing "alternative" about natural gas powered transportation. it has been around for decades. this is not a technology issue, it's a mere *policy* issue. it's a friggin no-brainer. why isn't the natural gas industry supporting this? i have contacted my local nat gas provider and i am going to their next board meeting to get the answer directly. did u see the wall street journal article the other day? some electric utility CEO's got together and they have decided to fund large purchases of electric cars for their operations to help support US manufacturers. now, THAT Is common sense and good business. why aren't the natural gas providers doing the same thing for nat gas? it's an enigma, a mystery wrapped in a riddle. (or just fear of big oil....)
john s.: oh, i am very aware of the composition of the 9/11 hijackers. i never said $145/barrel was "done by the ruskies" and i disagree that it was done by goldman sacks or 30/1 leverage. look, when the economy was strong, worldwide oil supply simply did not keep up with worldwide oil demand. period. supply never got over 86 million barrels a day. even at $145/barrel, look at the majors' production: XOM, CVX, COP - all had LOWER production volumes. it is a supply/demand issue and it will come back with a vengence when and if we make it through this financial meltdown. what i am saying is that now that prices have come down, we can act responsibly and adopt a strategic, long-term, comprehensive energy policy to mitigate oil's rise in the future. it's only common sense. unfortunately, that is lacking in washington and congress. hopefully, obama will provide the necessary leadership and action.
wiz: my dad had some GE and he was *pissed* at the 6% hit, and i agree. but, can't blame buffet on that...blame GE. as far as buffet paying more taxes, hey, listen he was very very critical of the bush tax plan when bush first announced it! he was on TV every day for weeks saying it was a mistake for his secretary to pay a higher rate then himself. he also pointed out all the loopholes for billionaire hedge fund managers not to pay ANY taxes on huge gains. no, buffet gets a gold star in my book for his outspokeness on common sense taxes. even mccain was against them (before he morphed into mini-george). it is the first time in history the US has fought two wars and cut taxes on the most wealthy. absolutely insane fiscal policy. unfortunately, rush limbaugh has all the people who would BENEFIT from obama's plan (very similiar to clinton's) thinking they would pay more. stupid is what stupid does.
Mmmmmmark: please don't be another joe the plumber. joe didn't understand that his taxes would go DOWN under obama. again, buffet was AGAINST the bush tax cuts for billionaires and he had more to lose than anyone. and, history has shown the bush's tax policies were a huge mistake. the deficits skyrocketed (doubled in a mere 8 years to over $10 trillion dollars), and the dollar dropped by 40% (before this financial meltdown) which helped oil pop higher. i can only assume you make more than $250k and/or have $10 million or so and aren't satisfied with that amount. meantime, the idocracy and fact of republican tax policy is the following: the ultra wealthy save a few percent on their taxes, and everybody loses 50% in the equity markets. lunacy.
Buffet probably hasn't endorsed an energy policy because it wouldn't be what the people want to hear and therefore wouldn't matter. He probably looked at electric cars and realized they use too many scarce metals to be economical on a nationwide/worldwide scale. He probably looked at the Pickens plan and realized that it would just shift the shortage to natural gas. He probably looked at nuclear and realized that it is only economical if the govt. pays for the disposal of waste. He looked at ethanol and realized that the net energy produced is zero. After lots of careful research, he might recommend more stringent building insulation standards, more railroads for freight, and more light rail for personal transportation. Since nobody wants to hear that their lifestyles and our economy have to change, it would be meaningless.
Also, Buffet has opined several times that the tax code should be more progressive and that he should be taxed more. He once noted that his secretary pays a higher percentage of her income in taxes than he does. He realizes that he can make more money being taxed higher in a functioning economy/currency than he can make being taxed lower in an unstable, inflation-riddled economy/currency.
I really think Joe the Plumber fully understand the O plan. While his taxes might go down in the short term, Old Joe the Plumber was looking further out to a point where he would be successful and make more than the $250k a year. That's when O would start to , you know, spread it around! I love it when he says that 95% of the folks making less than 250k/year would get a tax cut. Hell, a huge portion of that 95% don't pay taxes. So I guess that means welfare checks! Oyyy.
The good news?? With the economic condititions as they are, he's going to have a tough time to pull off any of these plans. Raise taxes during times like these?? 1929 will seem like a cake walk. I just hope my rich relatives can time their deaths to the year where we have a 0% death tax. Cuz after that, its back to , you know, spreading it around.
Cut spending, cut more and then cut even more. Start with congressional salaries...a pittance I know but sure would make a lot of people happy! Cut the waste. Cut the gov't bailouts!! Particularly to the UAW, I mean the Big 3 automakers. That pig shouldn't fly!
The problem with T. Boone Pickens' idea is that many of the potential backers are all short sighted. All they see right now is that natural gas generated electricity is cheaper than wind generated electricity. These are the same people that take $2.00 gasoline for granted now and totally forgot about $4.00 gasoline only a few month ago. They don't mind subsidizing net energy losing corn ethanol, but consider giving tax breaks to Pickens as socialism.
Alternative energy plans (like Pickens) need to be implemented when oil and gas is cheap, not when it is approaching the stratosphere. To make wind turbine requires oil and coal to excavate metal ores, refine them, cast them and mill them into turbine parts, transmission wire and transmission towers. Then oil is need to transport and install the turbines on the wind farms. Conventional fossil fuels are needed to transition to alternative energy sources.
kurt walter: i'll get back to you when he sells and we'll see how he fairs.
chris B: i like RIG too, but it pays no dividend and i can get 4% with COP. not bad during a deflationary cycle where we may have to wait awhile. wrt energy policy, good comments you have, but buffet, with his consumer holdings, needs a functioning economy which we will not have if we don't enact a strategic, long-term, comprehensive energy policy. i wasn't necessarily saying he should invest in the related plays, i was simply saying that he should back it with the same vigor in which, for instance, he came out against the insanely ignorant bush tax policies. wrt nat gas, the idea isn't to put all our eggs in that basket, but to *diversify* away from our near total dependence on oil. nat gas does that, is better for the environment, and we have huge US reserves. it's a no-brainer. i support ethanol, but not the bush mandates which simply blew out the agricultural market with huge corn related dislocations. we agree on railroads. people not want to hear about changes in their lifestyles, but in case anyone isn't paying attention..it has been happening anyway. we can either be proactive and reduce the impact, or roll over (like we have been) and be victims of reality. wrt buffet and his tax opinions, i am fully aware and have said many times what you said all so well: you can make more money being taxed in a functioning economy/ currency than you can make in an unstable inflation (and i would add deflation swings, like now) riddled economy/currency. this is the debate i have been having with so-called "conservative" republicans for years now. they are finally listenin now that their investments are down 30-50%.
wiz: don't care about im-bev - i stick to energy related stuff. i can't criticize buffet for trying to make money, i am too. however, i think buffet does have the interest in the country in mind, didn't you hear him discuss bush policies? he cares. he is a patriot. i don't question him on that. wrt iraq, obama gave a speech on the floor of the senate in which he attempted to warn congress, the president, and the american people that it would be a very big mistake. he was right - it was. wrt taxes, obama basically wants to have a much fairer tax/spend policy very similar to clinton. i agree totally. bush fiscal policy has been a complete unmitigated disaster from which the country will be lucky to survive. if we do, it will take decades to recover.
Mmarrkk: please read the last paragraph of Chris B's comment above. he said what i have been trying to convince you of, but apparently even the present financial crisis doesnt convince you about the ignorance of bush fiscal policies, so, i am sure my words wont convince you. wrt spending, it doubled under bush in a short 8 years. that was after clinton gave him a balanced budget. end of that discussion. there is nothing "conservatively republican" about bush - he is a radical fascist. period. the amazing thing about bush's policies, is not just that he spent the country into the deepest deficit ever, but that we don't have a single thing to show for it all. i can't wait to see the lousy sad sack out of office! my biggest fear now is how much damage he can do before he leaves (i.e. raping the treasury like he did for iraq by giving even more money to millionaires and billionaires on wall street and the well connected). since you love the guy so much, i can only assume that you are well connected to him and have been given US tax-payer money for doing absolutely nothing for it.
longoil: there is nothing wrong with Pickens' plan, it should be adopted and supported by the natural gas producers & distributors, the american auto industry (do you realize NONE of the big 3 even make a nat gas powered car or truck for consumer sale in the US?), as well as the electric utility CEO's. the problem is, they are all scared to death that the "big oil boogyman" will break into their house at night and take their first born. wrt energy plans, the US needs to adopt one now and stick too it regardless of short term energy costs. in fact, it is even more important, as you pointed out, to stick to it now that energy has fallen off a cliff. now we can build the infrastructure cheaper, and Lord knows there are going to be plenty of unemployed to help do it....
If anyone disagrees with this statement, I recommend you try starting your business empire in some low-tax, low-regulation capitalist utopia like Hati, Afghanistan, or Somalia, where the taxes are zero and you'll get virtually no government interference. Of course, none of your employees will be literate or healthy, transportation and communication will be near impossible, and you'll have to pay bribes to the local gang, but just imagine - no taxes! You'll quickly find that capitalism can't work without a competent, honest government providing the framework: laws, courts, regulation, enforcement, education, infrastructure, health and sanitation, etc.
How much damage can Bush do before leaving office? Looks like its Congress that wants to keep handing out the lollipops. I hope we shut down the candy jar now. Take the remaining $350 B that isn't being used in TARP and the $25 B that the UAW wants via GM, and all of the rest and put it in a lock box tighter than you know what. If we are going to do a stimulus, lets do it with infrastructure projects that will yield, as you say, something to show for it. First up: improved natural gas distribution system. Second: natural gas retail outlets and car conversions. Third: highways/bridges. Fourth: improved rail systems to take trucks off the road and put them on trains. Last/Never: free welfare checks called "stimulus checks". These do nothing.
With my differences on spending, immigration, etc., I still like GW but I'm not connected to the point where I get anything from him or his actions. Still like the man and still not against the war on terror. No attacks since 9-11...I'll go with that. And I hope that after 4 years of O, I can still say that! In fact, I'd like to be saying that 50 years from now no matter who's in charge.
Bottom line: US business taxes are some of the highest in the world. And they are continually changing and tied up in a garbled mess we call a tax code. Maybe that's the problem...its a code. Why not decode it and make it simple...flat tax or fair tax?
On Nov 18 03:34 PM Chris B wrote:
> "He [Buffet] realizes that he can make more money being taxed higher
> in a functioning economy/currency than he can make being taxed lower
> in an unstable, inflation-riddled economy/currency."...
>
> If anyone disagrees with this statement, I recommend you try starting
> your business empire in some low-tax, low-regulation capitalist utopia
> like Hati, Afghanistan, or Somalia, where the taxes are zero and
> you'll get virtually no government interference. Of course, none
> of your employees will be literate or healthy, transportation and
> communication will be near impossible, and you'll have to pay bribes
> to the local gang, but just imagine - no taxes! You'll quickly find
> that capitalism can't work without a competent, honest government
> providing the framework: laws, courts, regulation, enforcement, education,
> infrastructure, health and sanitation, etc.