Berkshire Hathaway Inc. is using this year's dip in commodity prices to load up on some of Buffett's favorite oil and gas investments, showing that history's most famous investor sees opportunity in a sector long disfavored due to its volatility and effects on the climate.

On one level, it's classic bargain-hunting by Buffett and Berkshire Vice Chairman Charlie Munger. Persistent concerns over the sector's environmental, social and governance performance, poor pre-pandemic returns and the risk of declining demand for fossil fuels in the decades ahead have soured many investors on the industry. Energy trades at the lowest price-to-earnings valuation of any sector in the S&P 500 Index, according to data compiled by Bloomberg. But it also generates the most cash flow per share.

'People are missing the economics that Buffett and Munger are looking at,' said Cole Smead, chief executive officer of Smead Capital Management, which manages $5.4 billion, including Berkshire and Occidental shares. 'The returns on capital in coal, oil and gas are off the charts compared with other sectors. And with ESG, you can buy them cheaper than you otherwise would.'

bloomberg.com - Buffett lifts fossil fuel bets as global ESG push mints bargains