Warren Buffett is perhaps the most famous investor of all time. By investing for the long term, he seeks growth through the power of compounding. Buffett has added a number of companies in recent months, but two stand out. Should I join him and buy the shares too?
Chevron
Buffett was quite strategic in wanting to take advantage of surging oil prices. He added Chevron (NYSE:CVX) to his portfolio in the first quarter of 2022.
This oil firm has been benefiting from high demand for oil following the war in Ukraine. At the time of writing, WTI crude oil is trading for $104 per barrel. I would have to go back to June 2014 to see anything reaching those price levels.
The company has also increased its presence in the liquified natural gas (LNG) market. It has already concluded a number of sale and purchase agreements over 20-year timeframes.
Given that Russian LNG and oil has been blacklisted, it appears that these commodity markets will remain lucrative for businesses like Chevron over the coming years.
However, the company may soon come under pressure from the Biden administration to increase supply, which could lead to a decline in the oil price and future profits.
Despite this, earnings growth over the past five years has been impressive, and likely a major factor in prompting Buffett to add Chevron to his portfolio.
Between 2017 and 2021, earnings-per-share (EPS) rose from $4.88 per share to $8.15. By my calculation, this results in a compound annual EPS growth rate of 10.8%. This is something I think Buffett would be happy with.
Citigroup
Another firm he added to his portfolio recently was Citigroup (NYSE:C). The investing and financial services business has performed well in recent times due to increased market volatility.
This volatility has been caused by a number of factors, including the pandemic and the war in Ukraine.
It has resulted in gains in its commodity and foreign exchange (FX) segments, but a decline in the investment banking arm.
Investment banking has been hit due to broader economic uncertainty. Given the unpredictable situation in Ukraine, there may be further contractions in this segment.
Despite this, the firm still posted revenue of $19.19bn for the first quarter of 2022, beating expectations of $18.15bn.
It’s also possible that Citigroup’s loan and mortgage arm may benefit from rising interest rates, which may hit 2.5% in the US by next month.
This means the company may be able to charge more for its lending services.
Overall, these two additions to Buffett’s portfolio are diverse and take account of the current economic climate. Although he’s bought the shares of many other companies recently, these two really stand out for their potential to grow over the long term. I will be adding both to my own portfolio soon.
