We recently got a look at the stocks Warren Buffett and the rest of Berkshire Hathaway's (BRK.A -0.54%) (BRK.B -0.57%) investment team were buying and selling in the fourth quarter of 2020. And there were two investments that were the biggest additions to the portfolio by a wide margin -- telecom giant Verizon Communications (VZ 0.03%) and energy giant Chevron (CVX -0.49%). In thisFool Live video clip,recorded on Feb. 22, Fool.com contributor Matt Frankel, CFP, andIndustry Focushost Jason Moser discuss why Buffett may have decided to put billions into each one.
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Matt Frankel: Verizon is not going to double your money overnight, but that's not what Buffett is trying to do. He wants steady cash flow. If you remember when we had Kevin O'Leary on a few weeks ago. He emphasized cash flow, and he specifically talked about Buffett and Munger. You want cash flow, Buffett wants dividends to be able to reinvest; 4.4% yield on a $9 billion investment is quite a bit of money.
Jason Moser: Yeah.
Frankel: To eventually reinvest. Remember, there's the 5G rollout coming. There's a lot of reasons why Verizon's growth should be slow and steady going forward. And that's what Buffett wants.
Moser: Yeah. I think to your point there, I'm glad you mentioned the 5G rollout because that is something I'm sure many of our listeners. One of the services I run here at work is focused on that 5G rollout, and all of the different companies and markets that will benefit from that. I will say, it is one thing in looking at the recent bidding for all of that spectrum for these operators to roll out that 5G capability. The demand for that spectrum, it far exceeded what was forecast. I want to say the estimates were somewhere in the neighborhood between $20 and $30 billion bid for the spectrum. It turned out to be closer to $90 billion. Certainly, Verizon is one of the companies in there, bidding for that spectrum because it's one of the largest wireless providers out there.
Frankel: Yeah. Going to the other side, Chevron. Chevron has proven this year, and Buffett's been an energy fan. He's admitted he was wrong on the timing, but he loves energy. Chevron has been the better financial energy play this year, in terms of the quality of the balance sheet, resiliency, not having to cut its dividend, things like that. Whereas ExxonMobil (XOM) was removed from the DOW because of those reasons. Buffett has two energy plays now, and it's really interesting the different ways he plays them. He's got Chevron, which he has a $4 billion common stock position in. Then he has Occidental Petroleum (OXY -0.23%), which he only owns as preferred shares. So he's not risking his principal as much there. It's interesting he has those two energy plays. Occidental is the bigger investment. I think it's about $10 billion.
Moser: Wow.
Frankel: But a lot of people weren't happy with that, but it's what I expect from Buffett. I want to see him put money into these kind of stocks when he's establishing a big position to just grow slowly.
Moser: I feel like you're right. On the one hand, I understand folks maybe being a little bit disappointed, and perhaps that's due to some of the investments that they've made recently. Smaller international fintech plays like Stone Co (NASDAQ: STNE) or talking about data, investing in Snowflake (NYSE: SNOW). That's really not his circle, so to speak. I certainly see Verizon and Chevron, things like that, more within his circle of competence. More within his philosophy, so to speak. I understand the disappointment, by the same token, I'm definitely not surprised at those purchases.
Jason Moser has no position in any of the stocks mentioned. Matthew Frankel, CFP owns shares of Berkshire Hathaway (B shares) and Occidental Petroleum. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Snowflake Inc. The Motley Fool owns shares of Stoneco LTD. The Motley Fool recommends Verizon Communications and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2021 $225 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
