Today I’m looking into a new 2023 presentation by stock picking guru Whitney Tilson, who’s pitching his flagship $49 newsletter, Empire Stock Investor.
In short, the presentation centers around what Tilson is referring to as “Buffett’s Next Big Bet,” which relates to an investment Buffett has made in the oil and gas market.
Here’s a snippet from the teaser:
“‘Buffett’s Next Big Bet’
“The world’s greatest investor, Warren Buffett, became famous when he turned $1,000 of his investor’s money into more than $17 million… Now, he’s laying down his next $40 billion bet… and those who join him could grow significantly wealthier…”Source: https://secure.empirefinancialresearch.com/?cid=MKT765356&eid=MKT771022&assetId=AST317967&page=2
So with that said, let’s unpack Whitney Tilson’s oil prediction and stock pick.
What Is Whitney Tilson Predicting?
The basis of Whitney Tilson’s prediction is that we are entering a new “supercycle” for energy, which he claims is “creating a kind of perfect storm for investing in fossil fuels.”
Tilson explained that, over the past 123 years, there have already been four major cycles in the commodity space, and that we could be about to enter a fifth and final peak, which would be bullish for oil and coincide “almost perfectly” with Buffett’s “big bet.”
“… we’re headed for what could be a FIFTH and possibly FINAL peak…
“A moment that coincides almost perfectly with Buffet’s ‘big bet'”
But aren’t fossil fuels dead?
Not according to Whitney Tilson.
He believes that despite the world’s transition to renewable energy like wind and solar, we are “nowhere close to ending our relationship with gas and oil.” And that the transition to renewable is actually creating the “perfect storm” for investing in fossil fuels.
“We’re gearing up to make the jump from one kind of energy – fossil fuels – to a growing set of renewable alternatives. That’s a massive transition.
“But here’s the thing…
“We’re nowhere close to ending our relationship with gas and oil. We’re just not ready.
“And that’s creating a kind of perfect storm for investing in fossil fuels.”
What does he mean by “perfect storm?”
Basically, Tilson believes that the shift toward renewables has led to underinvestment in fossil fuel production and that this, among other factors, has created a supply crunch.
At the same time, he believes that demand for oil and gas will continue to increase because we will need these resources to power the economy for potentially decades.
“Right now, we’re in a shortage phase… in a very big way.”
“It’s because we’re underinvesting in fossil fuel…
“Right when we’re going to need a lot more of it to move forward.
“We’ve made some kind of huge miscalculation when it comes to the transition to alternative energy. We’ve made the mistake of thinking we’re close to making that jump.
“When in reality, we could be decades off the mark…”
Tilson also explained that many companies (despite higher oil prices) have not been reinvesting their profits back into more oil production like they usually would. Instead, they have been raising dividends and doing share buybacks to entice investors.
“Even though we’re facing surging oil demand… and we just had a whole year where oil prices were soaring… the oil companies held back on producing more oil!”
Another factor in the supply crunch, according to Whitney Tilson, is that many companies are apprehensive about spending big on oil production due to the “fracking collapse” of 2014, which he likened to the dot-com bust but for US oil companies.
“It was like the dot-com collapse, but for Big Oil.
“And capex for the oil industry slowed to a trickle.
“Fracking startups shut down. Smaller fuel companies canceled projects. The majors shut down refineries. And that hangover lasted for years.
“In fact, at least 600 oil firms have gone belly-up since 2014.
“Because firms got so burned by the fracking collapse, they opted out of building new rigs, new pipelines, and new refineries.
“Instead, they sunk all their extra cash into wooing shareholders with dividends and stock buybacks. That meant even more years without much new oil production.”
Long story short, Tilson believes that a supply crunch in oil coupled with potentially decades worth of future oil demand is creating the “perfect setup for a whole new oil shock.”
And that, according to Tilson, could see oil stocks “shoot way up.”
“It’s the perfect setup for a whole new oil shock.
“And you know what happens during an oil shock.
“Oil prices shoot way up!
“Not just oil prices, but oil stocks.“
You can see his full take in the presentation, and he wrote a blog post on the company site about his thesis if you want to know more, but that’s the gist of it.
What company is he bullish on?
Let’s take a look!
What Company Is Tilson Bullish On?
Here’s a summary of the main clues Tilson shared about his recommendation:
“Warren Buffett, perhaps the greatest investor of all time, has a $39 BILLION stake in this company.
“When Buffett goes ‘all in’ on any investment, that’s not something that you want to ignore.
“You see, we already know fossil fuel companies are about to turn the taps on… and there is no better place maybe in the world right now than the Permian Basis.
“This is a 75,000 square mile area across the vast expanses of Texas and New Mexico that sits atop one of the world’s oldest and thus thickest rock formations.
“It has over 7,000 fields throughout the basin with nearly 50,000 active wells in action around the clock.
“It already produces nearly 50% of the country’s oil… and with demand set to skyrocket, that number will only go higher.
“And one company has half of this land in its back pocket.”
Based on that, we are looking for a company that Warren Buffett has a “$39 billion stake” in, and that produces “nearly 50% of the country’s oil.”
What could it be?
Well, to my surprise, it doesn’t appear as though Tilson is recommending an actual oil stock, but rather a company that has a stake in different oil companies.
Why do I say that?
Because Warren Buffett didn’t pour $39 billion into one specific oil company. Instead, he invested in a group of oil stocks through his company, Berkshire Hathaway.
According to investor-one.com, Buffett “made a $39 billion bet on oil stocks” last year (2022). And according to a more recent article on Motley Fool, those companies include Chevron Corporation (CVX), Occidental Petroleum (OXY), and Vitesse Energy (VTS).
The biggest two holdings are Chevron and Occidental (by far), as they make up around $35 billion or so as of the “bet” as of writing. And as a side point, these are the biggest landowners in the Permian Basin, which could help explain Tilson’s final clue.
So, what actual stock is he teasing?
I think Tilson may be recommending Berkshire Hathaway Inc. (BRK-B).
That’s the only thing that seems to make sense when you consider what I just explained, especially since he never specifically said he was recommending an oil stock.
Not to mention, the name of the report he’s pitching is “Grow Rich Betting Alongside Buffett,” which is essentially what you’re doing when you buy Berkshire Hathaway… you’re investing “alongside” Warren Buffett since that is his company.
What’s the ticker?
I don’t think Tilson’s recommending the main Berkshire Hathaway stock, as that is currently sitting at around $527,000 a share (lol). And very few people who see the presentation would be able to afford that. So if my guess is right, he’s likely teasing the “Class B” shares.
I could be wrong, but that is my guess.
Oh… and he did tease a couple other stocks as well, but he didn’t share much about them, so I’m not sure what they are. Here’s a quick overview of the clues he shared about both in case you thjikn you know what they could be…
Summary of the clues:
“The next step in getting rich from this supercycle is to buy the leading oil service plays…
“These companies help the major oil and gas producers worldwide locate oil and drill the wells.
“They also work to ensure maximum efficiency from these wells so that production is always at optimal levels.”
“That’s what step #2 is all about…
“Operating in 120 countries, I’ve found one company that’s the largest provider of these type of services.”
“… this company has a special advantage over its competitors in the industry: its technology.
“It has been recognized numerous times for its innovative technologies and has been ahead of the industry for over 100 years.”
Summary of the clues:
“Earlier, I told you how the Strategic Petroleum Reserve had fallen to its lowest level since 1983:
“The need to replenish this is great… and it’s already begun.”
“That’s where the final company comes into play…
“The oil company excels at efficiency… and makes their bones in the oil- and gas-rich Permian Basin.
“Its efficient operations have allowed it to produce bountiful amounts of barrels of oil.
“It already has increased its year over year production by 14%…
“At the start of this year, it already had over 2 billion barrels in reserve.
“In addition to being a stock poised for next level growth, it also pays out fat 6% dividend to its shareholders.”
Let me know if you have any ideas in the comments below.
Recommended: Go here to see my #1 rated stock advisory of 2024
This isn’t the first time Whitney Tilson has released a presentation about an “energy supercycle” prediction. I first wrote about his thesis on this in 2022, when he was teasing a “$4 Stock at the Center of the Energy Supercycle,” which I guessed was Tellurian (TELL).
You can see my write-up of that presentation here, but the gist is that it was a similar prediction, and it didn’t work out very well (Tellurian is currently sitting at under $1).
Nevertheless, I do think Tilson made some interesting points on the subject. And this time around, he appears to be recommending one of the biggest and most well-established companies in the world (Berkshire), not a small-cap oil stock.
That doesn’t mean his recommendation (whatever it is) will work out.
No one can predict the future.
But I am curious to see how his overall thesis plays out in the years ahead because I do think he made a compelling case regarding the supply/demand of oil and gas.
Anyways, that’s my take.
And if you want to know more about the newsletter Tilson is pitching, Empire Stock Investor, check out my detailed review of that service here.
Thanks for reading!