Tuesday, May 16, 2006

Enter the Dragon Grand Poobah.

"ConocoPhillips" sung to the tune of "Green Acres".

Starring Warren Buffett and Bill Miller.

Eddie, er, Warren:
ConocoPhillips is the oil stock for me.
Oil production is the life for me.
Oil reserves spread out so far and wide
Keep Manhattan, just give me that oil upside.

Eva, er, Bill:
New York is where I'd rather be.
I don't want no stinkin' commodity.
I just adore a penthouse view.
Dah-ling I love you but give me Citigroup on Park Avenue.

Warren Buffett appeared to suggest that oil was a bubble a month ago at the recent Berkshire Hathaway shareholders meeting, but maybe he'd had one too many cheeseburgers and Cherry Cokes Budweisers, or maybe he was just trying to headfake Bill Miller, another well known value manager (though with a different philosophy).

Motley Fool: Berkshire on Bubbles.


Q. Do you think that we are in a commodity bubble?

A. Not in agricultural products, but yes in metals, oils -- the most extreme being in copper.


Buffett's concerns were recently echoed by Legg Mason's Bill Miller, who said, "Today people want commodities, emerging market, non-U.S. assets, and small- and mid-cap stocks. Those were all cheap five years ago, and had you bought them then, you would be sitting on enormous gains ... [But] [g]iven the choice of buying Commodities with a capital C, or buying capital C -- Citigroup (NYSE: C) -- at current prices, I'll take the latter."

And now, Mr. Buffett's Berkshire Hathaway reveals:

AP: Berkshire reveals stake in ConocoPhillips.

Bershire already held an investment in Petrochina, which to some degree can be looked at 4 ways: an oil play, a China play, an anti-dollar play, and a 'maybe they find something in the South China sea' play ('Investment Advice from Kenneth Deffeyes.'). In addition, he bought a utility that wants to build a large wind farm ('What would Warren do?'), and talked about the idea that he might invest in nuclear power ('LOBG Sing Along w/ Warren Buffett.').

Now he's bought a stake in ConocoPhillips [COP] and GE.

COP is thus officially certified as the oil stock for the value crowd. It also happens to be well diversified oil major, having investments in tar sands projects in Canada and Venezuela, in oil production in Russia via a stake in Lukoil, large US oil operations including refining, and, having just bought Burlington Resources, extensive North American land based natural gas production.

But let's not forget GE also has a large energy business which has been targeted for expansion by CEO Jeff Immelt, producing items for natural gas, clean coal, wind and nuclear power generation.

So apparently Warren Buffett knows a little something about energy.

And in something I missed, so does Charlie Munger, his partner:

thestreet.com: Buffett Bets on Oil.


The ConocoPhillips stake also fits Buffett's game plan. He has experience in the energy sector, having made high returns by investing in PetroChina (PTR:NYSE - commentary - research - Cramer's Take), and he has long said publicly that he views energy as an attractive area.

Still, the move seems bound to raise some eyebrows, particularly after Buffett's longtime sidekick, Charles Munger, made some controversial comments at the recent Wesco Financial (WSC:NYSE - commentary - research - Cramer's Take) conference. He suggested that future generations will curse present-day Americans for consuming fossil fuels at such a high rate, since the supply of oil will be greatly diminished.

"Those were pretty strong words," says Tongue's partner at T2 Capital, Whitney Tilson. "You rarely see Buffett and Munger investing in something that's just had its biggest run in history in the last five years, [like the oil and gas market] . One reason may be that they believe oil prices are going to be high, if not higher, for a long time."