When the Wizard of Omaha makes a move, it tends to be the kind of move that draws interest. Warren Buffett's stock purchasing moves have led to some incredible gains over the years, though some have suggested that the name has become a bit tarnished in recent years. Berkshire Hathaway (NYSE:BRK.A) is still a name to conjure with, though, and Buffett's recent move to buy in on Dominion Energy (NYSE:D) is a move that's drawing some big new attention.
Dominion Energy Wobbles But It Don't Fall Down
One thing that makes Dominion Energy look like a textbook Buffett buy is its sheer stability. For most of the last year, the company has been trading in a very narrow range, but a range that's been slowly skewing upward. A year ago, the stock was a shade over $78, and by the time the ball dropped on New Year's Eve 2019, it had hobbled its way up to $82.82. Nothing spectacular—especially not over the course of six months—but gains are gains, especially when it comes to stock prices.
Then, of course, came the Massive Indiscriminate Coronavirus Sales Event, and Dominion Energy took it on the chin. Yet even here, “take it on the chin” is surprisingly mild; the company went from that $82.82 to $59.39 at its lowest. That's not that big a slump, especially given the circumstances, but it looks like a monster divot in the graphs.
What might have caught attention, though, was how quickly it recovered. Even as energy stocks took a beating—we briefly wondered if they'd wind up de-listed from the S&P 500 along with retail stocks—Dominion Energy staged an incredible comeback, recovering to $76.81 before March had even ended.
Even as oil went negative, even as coronavirus chaos continued to ravage the market, Dominion Energy quietly resumed course, and briefly established new highs, closing at $87.00 even on June 10. There has been some unusual downward pressure since, but it's looking like Dominion Energy has gotten out of its rut and back into its groove.
This brings us up to the present day, where Warren Buffett made one of the biggest moves he'd made since March, shelling out $10 billion to pick up Dominion Energy's natural gas assets. This includes not only $4 billion to pick up natural gas assets—including transmission and storage assets—but also the assumption of debt.
The move is huge for Berkshire Hathaway, particularly Berkshire Hathaway Energy. With this move, the group better than doubled its total coverage of interstate natural gas transmission operations, going from just 8% to right around 18%. A good thing; back in May, Buffett revealed to shareholders that the company had a cash hoard of $137 billion, which reflected the fact that Buffett hadn't actually seen deals worth pursuing, despite the almost frantic expansion of the stock market since its lows back in March.
A Refocused Dominion
The move also bodes well for Dominion, though some might question the strategy. Dominion has been working for some time now, reports note, to become a “pure-play regulated utility,” producing energy from a range of sources, including natural gas. Dominion notes that 90% of its future revenue is set to come from the utilities it operates in several states with a combined total of seven million customers. Throw in its additionally-announced move to end the Atlantic Coast Pipeline project it started with Duke Energy and it's clear that Dominion has one key target in mind.
Here, some might wonder if this was the move to make. After all, if Dominion is planning to generate energy from natural gas—as well as wind and solar—then wouldn't it make sense to have uninterrupted access to a supply of same? It would, of course, and natural gas is taking on increased importance as the “fuel of the future,” by some reckonings.
However, by ditching its transmission and storage operations, Dominion also takes a weight off its balance sheet and allows it to better focus its resources on generating and transmitting power, instead of the fuels required to make that power happen. It's not worrying about fixing pipeline or transmission issues to feed someone else's operations, and though this might come at a detriment to its own operations, keeping that liability off the balance sheets might be a big help.
It's also a huge help to Berkshire Hathaway's balance sheets since it was already a big player in transmission that's now an even bigger player. It's a move that will likely work out well for all sides by allowing for greater focus. While there's always a value in diversification, splitting off in too many directions at once means less impact where it counts.
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7 Boring Stocks That Are Winners
Some stocks just don’t get much attention during bull markets. They can be too boring for a growth portfolio. But when the market is going through a period of volatility and uncertainty, these tried-and-true performers have a way of making their way back to popularity.
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But “boring” stocks tend to move closer to the broader market. If you want an analogy from current events, these stocks flatten the curve. They won’t soar as high as riskier stocks, but they won’t sink as low either. And right now, preserving capital should be the number one item on every investor’s checklist.
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View the "7 Boring Stocks That Are Winners".