Berkshire Hathaway, founded by Warren Buffett, is currently sitting at its all-time high, and within intraday trading, the Class B shares have even traded higher than $152 per share.
But will the large drop in oil prices have an effect on the Class A and Class B shares?
After all, the Berkshire Hathaway portfolio currently has serious exposure to oil prices, and since June, they have dropped more than 30% and are going to even drop further in 2015. As a matter of fact, there are many threats looming over the Berkshire Hathaway portfolio of investments as the prices of crude oil continue to drop.
One of the biggest and most obvious threats to the portfolio is the damage being done by the energy sector, where Buffett definitely has significant interests. No doubt about it, the energy sector is having a terrible year, and Brent crude prices have gone from benchmark prices at $110 a barrel to less than $70 a barrel today.
Because of this, the energy sector of the S&P 500 has dropped 12% on a total return basis so far this year, and Buffett owns a number of large chunks of it. Let’s take a look at some of the energy names that are among the largest threats to the Berkshire Hathaway portfolio in the coming year:
- Conoco Phillips – Berkshire Hathaway currently has 472,000 shares of the company, and the overall shares are worth $30.6 million at this time. Year to date, the stock is down about 10% and could drop further due to weakness.
- National Oilwell Varco – this company that deals in oil services is having a difficult time just like the other oil companies. It has dropped more than 10% this year so far. Buffett’s 6.4 million shares have dropped to a value of $410 million.
- Suncor Energy – in 2014, independent gas and oil players are also taking a huge beating because of the weakness in the overall pricing and sector. Year to date, the stock is down 15%, and Buffett’s 18.5 million shares are worth $548 million.
- Exxon Mobil Corporation – this is a doozy in the Berkshire Hathaway portfolio where they currently own 41.1 million shares that are worth $3.7 billion at today’s prices. So far this year, Exxon Mobil has suffered a 10% price drop.
- Phillips 66 – because of the plunge in oil prices, the energy marketing and refining companies are also feeling the sting as well. Berkshire owns 6.2 million shares of Phillips 66, and after losing 11% this year, the stake is now worth $425 million.
Additionally, besides the $5.1 billion worth of energy shares owned by Berkshire Hathaway, the company has even greater exposure to falling energy prices. As an example, Burlington Northern Santa Fe railroad, acquired by Berkshire Hathaway for $44 billion in 2009, is also a play on coal and shale oil in the heartland of America.
We shouldn’t forget about Berkshire Hathaway Energy either, which is a group of utility and transmission companies including NV Energy, PacifiCorp and MidAmerican Energy.
We are not trying to suggest that the falling oil prices are going to spell doom for Berkshire Hathaway in 2015. This is a highly diversified company and run very well. But the falling energy prices could play a significant role in the company results.
It’s still wise to buy Class B shares of Berkshire Hathaway, but understand that Buffett is hardly insulated from the current energy market.