Avid followers of the world's greatest investor, Warren Buffett, will already be aware that back in February it was reported that Buffett's company Berkshire Hathaway sold its entire stake in one of the world's largest companies, Exxon Mobil Corp and sold its remaining stake in ConocoPhillips. It was no small decision either with the sale of Berkshire's Exxon Mobil shares bringing in around $3.7 billion.
What is so significant about these sales?
Just in case you happen to not be aware what business line Exxon and Conoco are in – its energy related. Exxon is primarily a manufacturer and marketer of petroleum products, while Conoco is primarily an explorer and producer of oil and gas.
As followers of Buffett know, the great man isn't a big seller of stocks – he much prefers to buy and hold. Thus, when he sells, it makes sense to sit up and take note!
While outsiders aren't privy to Buffett's thinking, it's hard not to assume he has weighed up the outlook for the oil price and decided he doesn't want to be anywhere near it!
Buffett's apparent view, coupled with comments from oil companies themselves which suggest low oil prices could continue for some time, possibly several years, arguably creates a bear case for oil and gas stocks.
Meanwhile, the bull case presumably requires a long-term view which involves a return to more even supply-demand dynamics coupled with a higher oil price. This is certainly a feasible scenario, however, there is little doubt that Buffett has taken a long term view as well…
Buy, hold or sell
Three of the most popular energy stocks on the ASX are Woodside Petroleum Limited (ASX: WPL), Santos Ltd (ASX: STO) and Oil Search Limited (ASX: OSH). Putting aside Buffett's apparent negative view, investors would be wise to keep tabs on the sector. It would appear too late to sell the majors, while smaller producers and explorers could still be considered a "sell" if their balance sheets aren't strong enough to survive a prolonged period of low oil prices. It could be too early to buy just yet, given the risk of another leg down. Hold looks the safest path at present.
