Buffett Talks Up Exxon ... After Dumping It

NEW YORK (TheStreet) -- Warren Buffett, chairman of Berkshire Hathaway(BRK.B), recently talked up Exxon Mobil(XOM) as a prime example of why an investor should own stocks and not gold. In the fourth quarter, though, Buffett's company was selling every share of Exxon it owned.

Exxon has been a small stake for Berkshire Hathaway relative to the other holdings in its equities portfolio -- only a little more than 420,000 shares, versus an IBM(IBM), where Buffett now holds more than 63 million shares, for example. The Berkshire portfolio has always been dominated by the top ten holdings, too.

Nonetheless, it's interesting to note the excerpt from Buffett's upcoming annual letter to Berkshire shareholders posted last week on the Fortune Web site, in which Buffett compared the gold market value -- $9.6 trillion -- to what it could buy in other assets: all U.S. cropland and 16 Exxon Mobils:

"A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton and other crops -- and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond."

Looks like Buffett won't be holding even 16 Exxon Mobil shares any time soon, though.

To be fair, with the hiring of two new portfolio managers in the past year, Berkshire Hathaway's equities portfolio is reflecting new priorities. Pursuing the best investment ideas of its new managers -- Todd Combs and Ted Weschler -- is not surprising, and the recent action in Berkshire's equities portfolio has reflected ideas from both new managers, including new holdings that were Weschler favorites at his former hedge fund, DirectTV(DTV) and DaVita(DVA).

However, it's not as if the new Berkshire equities brain trust needed some quick cash to fund its new ideas or effect a major portfolio reallocation. Selling the entire Exxon Mobil stake amounted to roughly $34 million, while Berkshire's big problem has been it has so much cash on its balance sheet that it can't find enough ways to deploy it all.

Some of Buffett's biggest acquisitions, like Burlington Northern, were made in part because Buffett has to find more capital intensive businesses for the huge cash generating machine otherwise known as Berkshire Hathaway -- the company had close to $35 billion in cash at the end of the third quarter. Buffett also announced the company's first major share buyback initiative late last year as a way to use more of the company's cash to reward shareholders.

Exxon has been on the receiving end of a lot of criticism from energy investors recently. Its $41 billion acquisition of XTO Energy looks more questionable on a valuation basis now with natural gas prices hitting historic lows, and its overall production growth hasn't met the expectation of investors.

Exxon continues to ride high oil prices but its dividend, while increasing over the past decade, still lags peers and the company has been less profitable on a per barrel of oil basis than Chevron for 10 consecutive quarters.

It's a tale of the Big Oil tape that led Argus Research analyst Phil Weiss to downgrade Exxon from buy to hold after the recent earnings and argue it remains the biggest but no longer the best among oil stocks.

Buffett continues to hold a significant stake in the leaner Big Oil peer of Exxon, ConocoPhillips(COP), which was unchanged in the most recent quarter.

Buffett has always been shrewd when it comes to massaging his message through the media, so maybe his recent public words about Exxon Mobil being the most profitable company in the world and a much better investment than gold were a way of making nice with the oil giant, knowing that his 13F would show this week that his company doesn't want to own even one share of it.

Because despite the "trillions of dollars" in dividends and "assets worth many more trillions" that the oil company will hold in a hundred years, Exxon isn't holding a place in the Berkshire Hathaway portfolio.

-- Written by Eric Rosenbaum from New York.

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