One of the world's leading investors, Warren Buffett, likes all sorts of industries.
Buffett's Berkshire Hathaway invests in everything from insurance, railways, jewellery and furniture to candy and many other businesses. Tech giant Apple may be the best-known company in the portfolio, but one stock that Buffett's Berkshire Hathaway has been investing in recently is Occidental Petroleum Corp.
Now, Occidental Petroleum is not exactly the same as ASX oil and gas share Woodside Energy Group Ltd (ASX: WDS), but there are obvious similarities.
As a major presence on the ASX, it's worth asking whether Woodside would make it into Buffett's Berkshire Hathaway portfolio. Let's take a look.
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Would Warren Buffett buy Woodside shares?
Buffett likes quality businesses that are growing and at a good price.
I think we can call Woodside a quality business. It's a leading operator in Australia. In the first quarter of 2024, the business produced 44.9 million barrels of oil equivalent (MMboe), and it achieved an average realised price of US$63 per barrel.
According to Commsec, Occidental Petroleum shares are currently valued at 14x FY24's estimated earnings and 13x FY25's estimated earnings.
Meanwhile, Woodside shares are priced at 14.6x FY24's estimated earnings and 15x FY25's estimated earnings.
The valuations are very similar, but we can see that Woodside's valuation is slightly higher, and the earnings are predicted to reduce, while Occidental Petroleum's earnings are predicted to grow. Even so, I think the valuation is close enough for Buffett to be interested.
Woodside has growth projects — including Scarborough, Sangomar, Trion, and H2OK — that could help increase its earnings in the coming financial years.
But as Woodside's performance also depends on what happens with energy prices, time will tell how much the ASX oil share will be able to grow its earnings in the future,
The broker UBS has estimated that Woodside could generate US$2.34 billion of net profit after tax (NPAT) in 2024 and US$2.31 billion of net profit in FY28. This suggests that Woodside's profit could be virtually the same in four years from now.
The Woodside share price has fallen 25% since August 2023, so it's much cheaper now, as the chart below shows.
I'm not sure Buffett would be interested in adding Woodside shares to the Berkshire Hathaway portfolio, considering it already has exposure to the sector.
However, if he wanted to add more oil and gas exposure, then Woodside may be cheap enough to be attractive, but I wouldn't say it's quite at bargain levels yet.
