Buffett takes $3.7 billion stake in Exxon Mobil

[Guest ajc]

"Warren Buffett's conglomerate Berkshire Hathaway owned a stake of about 40 million shares in oil major Exxon Mobil as of the end of September, according to an SEC filing on Thursday.

 

Based on the most recently available holdings data, that would be enough to make Berkshire the 6th-biggest holder of Exxon shares, with about one percent of the shares outstanding.

 

The stake was worth $3.74 billion at Thursday's closing prices..."

 

http://www.cnbc.com/id/101128782

[CorpRaider]

That's big enough that its probably a WEB buy, no?  Looks like Yacktman has been buying as well.  Bmichaud and I were just talking about XOM…probably while he was buying.  I sucked my thumb.  Oh well.

[Palantir]

I was looking at it too.... I like its cannibalistic tendencies.

[Aberhound]

The longer I hold it the more I like management. Gains are lumpy but average out well over time. Through Esso they have produced oil at Norman Wells for decades past when the oil was supposed to run out. I wonder how many of their holdings are like that.

[bmichaud]

I cover the stock for my firm - Buffett must've seen my recent report rating it a buy with a 16% projected 5y IRR :)

 

XOM is the Berkshire of big oil - not a care in the world for quarterly results, focus on the extreme long term and high roc, minimal debt and laser-like capital allocation.

 

I've long wondered why BRK hasn't owned this. Not sure why WEB wasn't buying in 2010 when it was below $60....not much has changed since then save the share count.

 

Also have wondered why BRK doesn't have MCD has a top holding. Perhaps just a matter of time.

[boilermaker75]

I cover the stock for my firm - Buffett must've seen my recent report rating it a buy with a 16% projected 5y IRR :)

 

XOM is the Berkshire of big oil - not a care in the world for quarterly results, focus on the extreme long term and high roc, minimal debt and laser-like capital allocation.

 

I've long wondered why BRK hasn't owned this. Not sure why WEB wasn't buying in 2010 when it was below $60....not much has changed since then save the share count.

 

Also have wondered why BRK doesn't have MCD has a top holding. Perhaps just a matter of time.

 

I agree about MCD. It is a long-term holding for me.

[giofranchi]

Not sure why WEB wasn't buying in 2010 when it was below $60....

 

I bought it then! Later I sold it booking substantial profits. Probably, a bad decision… but, really, what do I know about something so BIG?!

 

Damn!! As time passes, I find my circle of competence shrinking instead of getting larger… Because I keep requiring to know more and more about a business, before accepting it inside… The net result is an “outflow” of businesses from my circle of competence, instead of an “inflow”… ???

 

Gio

 

[rkbabang]

Interesting.  I bought XOM in 2010 for $59 then sold a little more than a year ago for $88.  Unlike the market in general it hasn't done much in the last year.  It doesn't look undervalued to me right now the way it did in 2010.  I'd rather own BRK than follow him back into XOM.

[boilermaker75]

Interesting.  I bought XOM in 2010 for $59 then sold a little more than a year ago for $88.  Unlike the market in general it hasn't done much in the last year.  It doesn't look undervalued to me right now the way it did in 2010.  I'd rather own BRK than follow him back into XOM.

 

After seeing XOM was the secret stock, I took a quick look this morning and it does seem expensive. An enterprise value of $392B with a TTM FCF of $12.6B. Capital expenditures seem to eat a lot of the operating earnings each year. FCF was $40B in 2008, but the highest it has been since then was $24.4B in 2011.

 

I'm sure it will be a home run for Buffett, but I don't know why.

[blainehodder]

EBIT/Tev (one of the best if not the best predictors of returns in general) had it in the cheapest decile of >10B US equities when Buffett was buying.  Add to that the fact that they are the low cost producer, a history of strong capital allocation, a history of strong returns on capital, and a rock solid balance sheet.  Bonus points for oil as a bit of an inflation hedge if CPI picks up. That is a recipe for success.

 

Pretty consistent with Wesley Gray/Greenblatt research.

[watsa_is_a_randian_hero]

I have $100 and $95 LEAPS I bought 2 years ago, expiring in 2 months.  I assumed they would expire worthless...they actually have a chance now of making money.

[txlaw]

Does anyone remember how Chanos was saying to short XOM because it's a liquidating trust?  I wonder if he's still negative on XOM's prospects.

[rkbabang]

Interesting.  I bought XOM in 2010 for $59 then sold a little more than a year ago for $88.  Unlike the market in general it hasn't done much in the last year.  It doesn't look undervalued to me right now the way it did in 2010.  I'd rather own BRK than follow him back into XOM.

 

After seeing XOM was the secret stock, I took a quick look this morning and it does seem expensive. An enterprise value of $392B with a TTM FCF of $12.6B. Capital expenditures seem to eat a lot of the operating earnings each year. FCF was $40B in 2008, but the highest it has been since then was $24.4B in 2011.

 

I'm sure it will be a home run for Buffett, but I don't know why.

 

I understand why he would want to own XOM, I'm just not sure why he is buying it now.  He's getting a great company at a fair price, I'd rather see him get a great company at a great price.  But then again, in 20 years it won't matter if BRK bought it at $60 or $100, it will be still be a great investment.  I may own some amount of BRK for 20 years, but I don't usually hold my other stocks very long.  Once they are fairly valued I start looking elsewhere.  I suppose it is different if you are managing many $Billions.

[jay21]

Interesting.  I bought XOM in 2010 for $59 then sold a little more than a year ago for $88.  Unlike the market in general it hasn't done much in the last year.  It doesn't look undervalued to me right now the way it did in 2010.  I'd rather own BRK than follow him back into XOM.

 

After seeing XOM was the secret stock, I took a quick look this morning and it does seem expensive. An enterprise value of $392B with a TTM FCF of $12.6B. Capital expenditures seem to eat a lot of the operating earnings each year. FCF was $40B in 2008, but the highest it has been since then was $24.4B in 2011.

 

I'm sure it will be a home run for Buffett, but I don't know why.

 

I understand why he would want to own XOM, I'm just not sure why he is buying it now.  He's getting a great company at a fair price, I'd rather see him get a great company at a great price.  But then again, in 20 years it won't matter if BRK bought it at $60 or $100, it will be still be a great investment.  I may own some amount of BRK for 20 years, but I don't usually hold my other stocks very long.  Once they are fairly valued I start looking elsewhere.  I suppose it is different if you are managing many $Billions.

 

I am sure that Buffett has some micro insight that I don't, but looking at the macro backdrop, this company couldn't this be a great inflationary investment assuming that they are a cannibal as another poster suggested?

 

Their product will increase its price in an inflationary environment.

 

They are issuing expensive debt that will decrease in value in an inflationary environment to buy fairly priced stock that could appreciate in an inflationary environment.

 

I don't have any insight into XOM so I could be wrong.

[wachtwoord]

Damn!! As time passes, I find my circle of competence shrinking instead of getting larger… Because I keep requiring to know more and more about a business, before accepting it inside… The net result is an “outflow” of businesses from my circle of competence, instead of an “inflow”… ???

 

Gio

 

Read this: http://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect :) (Dunning-Kruger effect)

 

That's big enough that its probably a WEB buy, no?  Looks like Yacktman has been buying as well.  Bmichaud and I were just talking about XOM…probably while he was buying.  I sucked my thumb.  Oh well.

 

What is a WEB buy?

[gfp]

WEB = Warren E. Buffett

[ItsAValueTrap]

I think i'd rather own exxon mobil over 95% of the independent oil and gas companies out there.  (But that's mostly because independent oil and gas is awful.)

 

Management is very good, they don't use debt as a crutch, and they are buying back shares.

 

Their free cash flow is probably poor because they are plowing cash back into more production capacity.

[rkbabang]

I think i'd rather own exxon mobil over 95% of the independent oil and gas companies out there.  (But that's mostly because independent oil and gas is awful.)

Management is very good, they don't use debt as a crutch, and they are buying back shares.

Their free cash flow is probably poor because they are plowing cash back into more production capacity.

 

I agree. Tesla and Solar City aside, oil is going to be with us for a long time and the price will only increase (long term).  This is more of a "hmm that's interesting" than a "WTF?" purchase.  I think it will work out well.  It's not like he's buying a failed handset maker or a textile mill in New Bedford or something.

 

[Uccmal]

I think i'd rather own exxon mobil over 95% of the independent oil and gas companies out there.  (But that's mostly because independent oil and gas is awful.)

 

Management is very good, they don't use debt as a crutch, and they are buying back shares.

 

Their free cash flow is probably poor because they are plowing cash back into more production capacity.

 

I concur.  The very biggest integrateds can buy good assets when they need to add reserves.  They can cherry pick among the smaller companies.  I dont own Exxon.  If I wanted exposure to O&G it would be on my short list.  I see it as an energy company rather than an oil company.  As alternatives become a greater piece of the pie XOM will just redirect cash flow that way.  I wonder if this is what Buffett sees.  He would certainly have a good handle on the sector via Mid-American. 

 

He is also reaching the end game.  The list of acquisitions that will move the needle is getting ever smaller. 

[petec]

I don't think you get a bonus point for oil as an inflation hedge because you need to continually reinvest to maintain production and inflation hits capex hard.  Inflation hedges work when your revenues rise over an existing asset base, not one that needs replenishing.

 

Other than that, A1 company in a C3 industry.

[CorpRaider]

Yeah, I almost think of them as a disciplined energy focused investment banking/PE shop (the PE thing because of operational capabilities they can bring).  If one thought there were likely to be lots of opportunities in this space, they would probably be one of the best jockey stocks, especially if you have to put $4 billion to work as an initial position.

[oddballstocks]

 

 

He is also reaching the end game.  The list of acquisitions that will move the needle is getting ever smaller.

 

This is what I see, fewer and fewer companies that he can put any amount of cash into.  I'm not sure if there's even that much for us mere mortals who don't have billions to invest. 

 

Of the nine thing he can invest in anymore I guess Exxon was the best right now, I don't know if there's anything we can read into or get out of the deal for ourselves.

[Palantir]

I am sure that Buffett has some micro insight that I don't, but looking at the macro backdrop, this company couldn't this be a great inflationary investment assuming that they are a cannibal as another poster suggested?

 

Their product will increase its price in an inflationary environment.

They are issuing expensive debt that will decrease in value in an inflationary environment to buy fairly priced stock that could appreciate in an inflationary environment.

 

Why would you be preparing for an "inflationary environment"? It seems bizarre to base an investment case on "beating inflation".

[wescobrk]

In the partnership days and even into the 80's he bought everything half off or more, now it seems the best he can do is buy dollar bills for 90 cents.

It's been pointed out his universe is so small now with a near 300 billion market cap.

A nice problem to have but obviously returns will be pretty pedestrian in the future (as he has warned) especially since he thinks its reasonable float has probably peaked and may start to decline slightly.

[wescobrk]

When bac hits 20 a share his massive 9 billion profit is a measly 3 percent of the current market cap.