- Energy stocks are emerging as a top favorite with Wall Street elites even as the recent string of bank failures spook markets.
- Warren Buffett's Berkshire Hathaway spent nearly $500 million on Occidental Petroleum stock in just three days.
- BlackRock and Goldman Sachs have also touted their preference for energy stocks.
The worst banking 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 equities.
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 around $20 billion in Chevron last year.
BlackRock, the world's biggest money manager, prefers energy stocks on the prospect that oil and gas prices could rise this year amid supply constraints, strategists led by Wei Li wrote in a note published this week. The firm also favors healthcare shares for their "defensive characteristics in a downturn" and financials given 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 healthcare. More recently, the US bank upgraded the European oil and gas giant Shell to a buy rating in February, predicting share gains of as much as 40%.
"Rates are moving higher, and therefore we're looking for value. That'll be the strategy and the playbook for this year," Kostin told Bloomberg TV at the time, referring to the Federal Reserve's interest-rate increases over the past year.
"There's a much greater share of earnings that are coming from energy as compared with 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 it's paying off debts, distributing dividends, and repurchasing shares, the oil company's CEO Vicki Hollub has said. Berkshire won approval from regulators in August to increase its Occidental ownership to 50%, signaling they're not done building their stake.
Buffett's firm has stuck with its bullish approach toward energy stocks this month while BlackRock also has reiterated its preference for the sector in spite of a slump in oil prices. Crude prices have slid in recent weeks on fears the US bank collapses could trigger an economic slump that would sap energy demand.
The price of West Texas Intermediate crude, the US benchmark, fell below $70 per barrel this week to lows unseen since 2021. The S&P 500 Energy Index of sectoral shares is down about 12% so far this year, after advances of 59% and 48% in 2022 and 2021, respectively.
The current bout of financial-market turbulence stems from a string of bank collapses over the past week or so. Silicon Valley Bank folded last Friday in the second-biggest such collapse in history. That came just days after Silvergate Capital shut down, and was quickly followed by the closing of Signature Bank.
Economic uncertainty fueled by the banking turmoil has led to a jump in oil market volatility. The CBOE Crude Oil Volatility Index is on track for the biggest weekly increase in over a year.