Only two more days remain until millions of Americans head to the polls. Many others across the country have already voted. The outcome of the elections will almost certainly cause some stocks to rise and some to fall.
Warren Buffett probably won’t fret about how the stocks in Berkshire Hathaway‘s portfolio will perform regardless of who wins. However, at least a few of his stocks could be big winners if former President Donald Trump secures a second term and Republicans gain control of Congress. I predict two Buffett stocks in particular will jump if Trump and the GOP sweep this week.
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Two of the six largest positions in Berkshire’s portfolio are oil stocks that are poised for big gains with Republicans in power. Chevron(NYSE: CVX) ranks as the conglomerate’s fifth-largest holding, with a stake currently worth around $17.7 billion. Occidental Petroleum(NYSE: OXY) trails Chevron in the No. 6 spot, with Berkshire owning roughly $13.2 billion worth of the oil and gas producer going by fair value.
Buffett initiated a position in Chevron in the fourth quarter of 2020. The stock had plunged earlier in the year with the pandemic shutdowns across the world dramatically reducing the demand for oil.
Although Berkshire has a significant stake in Chevron, it owns fewer shares than it did a year ago. Buffett sold around 3.11 million shares in the first quarter of 2024 and another 4.37 million shares in the second quarter.
On the other hand, the legendary investor has continued to aggressively buy shares of Occidental Petroleum. Buffett opened a new position in Oxy in the first quarter of 2022 and has added to it nearly every quarter since then. Berkshire now owns 27.3% of Occidental and obtained regulatory approval in 2022 to acquire up to 50% of the company.
Why are Chevron and Occidental Petroleum stocks likely to benefit if Trump and the GOP win the upcoming elections? Two Republican policies could especially affect them.
First, Trump has pledged to increase domestic drilling for oil and gas. Exactly how much his policies will actually help Chevron and Occidental remains to be seen. The U.S. is already producing a record number of barrels of oil per day.
However, oil executives would no doubt love the deregulation that a GOP sweep would likely usher in. Investors will probably do so, too, with shares of Chevron and Occidental rising as a result of the increased optimism about the oil and gas industry.
Second, Trump wants to reduce corporate tax rates from 21% to 15%. If he’s able to implement this change (which would be much more likely with his fellow Republicans controlling the Senate and House of Representatives), it could boost Chevron’s and Occidental’s bottom lines.
Decision Desk HQ, a website that covers U.S. election results, estimated as of Friday night that Trump had a 54% chance of winning the presidential race. It pegged the probability that Republicans win the Senate at 74% and the House at 53%. While those percentages might seem good that a GOP sweep is on the way, the site considers the slim presidential and House margins “effectively a toss-up.” And simple probability math indicates the odds of the party winning the presidency and both chambers of Congress are only around 1 in 5, based on Decision Desk HQ’s models.
Keep in mind also that Decision Desk’s projections are based on polls that could be wrong. The fact that many state polls have very similar margins could indicate that some pollsters are adjusting their results to ensure they aren’t outliers. This process, referred to as “herding,” can create an illusion that the election is closer than it actually is. Statistically, there should be more variation in polls than we’re seeing.
It’s possible, therefore, that Vice President Kamala Harris could beat Trump and the Democrats control at least one chamber of Congress. How would Chevron and Occidental stocks perform in this scenario? I wouldn’t expect a big bounce. On the other hand, I don’t think a major sell-off is likely, either.
Regardless of which party is in power in Washington, D.C., there will still be significant demand for oil and gas. Also, both Chevron and Occidental are investing in carbon capture and storage technology. If they’re successful in these efforts, these Buffett stocks will almost certainly be big winners over the long term.
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Keith Speights has positions in Berkshire Hathaway and Chevron. The Motley Fool has positions in and recommends Berkshire Hathaway and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
