Warren Buffett recently made a big move at Chevron. One could say: old economy meets old economy. But the star investor is probably right with his investment – ??once again.
For a long time, it’s been tech stocks that have propelled Wall Street up and investors have been clamoring for them. The magic word was scalability. Companies like Netflix or Microsoft can, so to speak, supply an infinite number of customers with their offers without the costs increasing noticeably. You only have to spend slightly more money if more viewers are streaming a series than before or if more users want to use an office software package.
But the wind has changed noticeably on the international stock exchanges. The new investment motto is scarcity. And the offer from Netflix, Microsoft and Co. is anything but scarce. On the contrary: it is almost infinitely expandable or scalable, as the experts call it. What is currently scarce, for example, is oil. Demand first picked up noticeably as a result of the global economic recovery. And now the increased demand is meeting a limited supply that could be further reduced by Russia’s terrible war in Ukraine. It’s no wonder that the shares of the sponsors are suddenly in demand and that prices know almost only one direction: up.
At the end of last year, Warren Buffett held a $4.5 billion stake in Chevron. At the end of March it was almost $26 billion. Since then, the share price in dollars has risen by more than five percent. It looks like Buffett got it right once again.
In itself, there is a comparatively simple logic behind the deal: The veteran relies on a company whose supply is scarce and cannot be expanded within a short time. It is precisely this scarcity that the stockbrokers are currently rewarding.
For years, oil producers have scaled back investments due to low prices. Of course, that affected the offer. But even now that the oil price is well above the 100 dollar mark, the oil multinationals are holding back on spending on finding and developing new deposits. For example, according to the service company Baker Hughes, the number of drilling rigs in the USA is currently 705 and thus far below the level before Corona.
There are two main reasons for the lack of willingness to invest. Firstly, there are ever stricter environmental regulations, which makes corresponding investments more difficult or even prevents them. And secondly, Exxon, Chevron and the other sponsors also generate such high revenues. The average breakeven point at which the oil multinationals make money is around $50 a barrel. The price of oil is currently more than twice as high. And according to Exxon, the break-even point should continue to fall thanks to new technologies.
In view of the bubbling profits, it seems unattractive to take the risk of making a bad investment. To put it simply, the big oil multinationals simply let their businesses continue and, in the face of rising interest rates, prefer to use their earnings to pay down debt. Also, it takes years to develop a new deposit. This means that even if the oil companies were to raise their hands properly now, there would hardly be a higher supply in the short to medium term.
The situation with many other raw materials is the same as with oil, for example the industrial metal copper or the battery raw material lithium. A similar mechanism takes effect – albeit for different reasons – with agricultural commodities. Here it is Russia’s war against Ukraine that is causing the supply of wheat, for example, to fall. The “granary of the world” not only produces grain, but also large quantities of sunflower seeds and the corresponding oil.
These production losses cannot be quickly compensated for elsewhere. The supply will therefore remain tight until at least next year. And if the war in Ukraine continues any longer, there is hardly any end in sight to the supply bottlenecks.
In this environment, investors can, for example, rely on stock indices, which also include many large commodity groups. These include the FTSE, which contains the largest companies listed in Great Britain. The Stoxx Europe 50, which consists of the largest companies from Europe including the United Kingdom and Switzerland, is even more widely spread regionally. All in all, it makes sense not to invest all of the capital currently available for share purchases – for example 25,000 euros. There will continue to be more favorable follow-up purchase opportunities in both the raw materials and technology sectors.
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