The "Oracle of Omaha," Warren Buffett (NYSE:BRK.B), again caused heads to turn yet with his company's purchase of a significant stake in Exxon (NYSE:XOM) this week. The move puts a new focus on the energy sector of the market and what this purchase could mean to Exxon and other oil stocks as they move into 2014. Buffett is known as a strong "value investor" so other investors are giving these companies a hard look as the economy makes its slow recovery.
A Buffett Target
Warren Buffett has a penchant for buying into large, established companies that have a proven track record of earnings and stability. Perhaps his interest in Exxon could be expected as the company's stock has lagged for the past 3 to 5 years. This is exactly the type of holding Buffett could be expected to seek out in his ever-expanding hunt for bargain companies. His company, Berkshire Hathaway (NYSE:BRK.A), already has a number of energy holdings, including NV Energy (NYSE:NVE) and MidAmerican Energy (MDPWK). However, Exxon's leadership in the energy sector makes this a particularly interesting buy.
Berkshire Hathaway purchased 40 million shares in Exxon, the largest publicly traded oil company in the marketplace. The purchase represents 0.9 percent of Exxon's stock, a sizeable holding that tells investors that Buffett is expecting expanding opportunities in this sector in the months and years to come. Buffett applied to the Securities & Exchange Commission to delay announcing the purchase, which was actually made in the 2nd quarter. This is done to avoid having investors follow his actions, causing upsets in the market. The purchase was then announced to the public during the 3rd quarter.
The Reasons Why
Buffett knows the Exxon is trading at 11.6 times its expected 2014 earnings. It's also a company that may be out of favor currently but which has a long history of finding ways to design itself into a machine for profits. Its current price is low but is expected to go higher by a number of analysts. The dividend on Exxon stock is 2.8 percent for new buyers, which serves as another desirable reason to own the stock. Exxon has also been buying back its own stock, which is another sign of their fundamental strength.
Buffett's interest in acquiring such a large stake in a large energy producer like Exxon means that he expects significant gains in this sector in the near future. Looking at the economy's steady recovery, he may be making calculations that will pay significantly in 2014 and beyond.
We agree with his thinking and rate the company a buy for value oriented accounts.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.