Buffett, BlackRock find energy stocks irresistible in times of turmoil

• Energy stocks are emerging as a top favorite among Wall Street elites, even as the latest spate of bank failures spooks markets.
• Warren Buffett’s Berkshire Hathaway spent nearly $500 million on Occidental Petroleum shares in just three days.
• BlackRock and Goldman Sachs have also touted their preference for energy stocks.

The worst bank failures since 2008 have sent shockwaves across markets this month, but that hasn’t stopped some of Wall Street’s biggest names from piling into pockets of value in stocks.

And one sector is proving quite a favorite among the likes of Berkshire Hathaway, BlackRock and Goldman Sachs – energy stocks.

Warren Buffett’s investment firm has been buying into Occidental Petroleum, last year’s top performing stock in the S&P 500 index, resuming its purchases in recent weeks after a five-month hiatus. Berkshire poured more than $11 billion into the firm in just over 12 months, with the latest purchases of $467 million reported this week. It also invested about $20 billion in Chevron last year.

BlackRock, the world’s largest money manager, favors energy stocks on the prospect that oil and gas prices could rise this year due to supply constraints, strategists led by Wei Li wrote in a note published this week. The firm also favors healthcare stocks for their “defensiveness in a downturn” and economic conditions, as they tend to benefit from higher interest rates.

Goldman Sachs chief US equity strategist David Kostin said last month it was time to turn to value stocks from sectors such as energy and health care. More recently, the US bank upgraded European oil and gas giant Shell to a buy rating in February, predicting stock gains of as much as 40%.

“Interest rates are moving higher and so we’re looking for value. That will be the strategy and the playbook for this year,” Kostin told Bloomberg TV at the time, referring to the Federal Reserve’s rate hikes over the past year. .

“There’s a much larger proportion of earnings coming from energy compared to its market weight. Like 10% of earnings in the market and maybe 5% of market cap, so that has suggested that earnings are likely to be much higher there,” he added .

Buffett likes Occidental for its domestic foothold and the fact that it is paying down debt, paying dividends and buying back stock, the oil company’s Chief Executive Officer Vicki Hollub has said. Berkshire won approval from regulators in August to increase its Occidental ownership to 50%, signaling that it is not done building its stake.

Buffett’s firm has stuck to its bullish approach to energy stocks this month, while BlackRock has also reiterated its preference for the sector despite a drop in oil prices. Crude oil prices have fallen in recent weeks on fears that a US banking collapse could trigger an economic slowdown that would undermine energy demand.

The price of West Texas Intermediate crude, the US benchmark, fell below $70 a barrel this week. % in 2022 and 2021 respectively.

The current turbulence in the financial markets stems from a series of bank collapses over the past week or so. Silicon Valley Bank folded last Friday in the second-largest such collapse in history. It happened just days after Silvergate Capital shut down, and it was quickly followed by the closing of Signature Bank.

Economic uncertainty fueled by the banking crisis has led to a jump in oil market volatility. The CBOE Crude Oil Volatility Index is on track for its biggest weekly gain in over a year.