Warren Buffett has long been a big fan of oil and gas stocks. Over the decades, he’s plowed billions of dollars into energy firms. The portfolio of his holding company, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), is currently betting more than $30 billion on just two oil companies, one of which it keeps buying more and more of.

Buffett has loved this oil stock for years

Most investors have heard of Chevron (CVX -1.68%). It’s one of the largest oil companies in the world. But did you know that Chevron is currently the fifth-largest position in Berkshire’s publicly traded portfolio, a position worth around $18.6 billion? It’s not a new position, either. Berkshire first started buying shares in the fourth quarter of 2020 when they were valued at roughly $70 per share. But because Buffett’s company built its position over time, its average entry price is estimated to be around $130 per share — just $15 less than the current stock price.

Is this your chance to bet on a major Buffett stock without paying an onerous premium?

The first thing to know is that Buffett and Berkshire Hathaway have already made a solid profit on this investment. From the initial purchase, Chevron shares have delivered a total return of nearly 120%. That compares to a total return of just 77% for the S&P 500 index over the same time period. Buffett has repeatedly added to and trimmed this position over time, so he hasn’t experienced the entirety of those gains. But Chevron’s valuation has ticked up considerably since he first became interested.

^SPXTR data by YCharts

In recent weeks, Chevron’s valuation has come down sharply. The total return for the stock so far in 2024 lags that of the S&P 500 by nearly 20%. Now could be a great time to get involved. Shares trade at just 14.3 times earnings — a steep discount to the S&P 500’s average valuation of nearly 30 times earnings. While Chevron stock has long traded at a discount to the broader market on an earnings basis, shares have rarely traded with this high of a free cash flow yield. The current free cash flow yield is around 7% — nearly double the long term average. The company has been able to use this excess cash flow to support a sizable 4.5% dividend while also spending more than $3 billion per quarter buying back stock.

CVX Free Cash Flow Yield data by YCharts

Chevron’s integrated business model and economies of scale make it a great way to bet on fossil fuel demand over the long term. If you’re bullish on oil, it’s likely wise to follow Buffett into Chevron. Despite some recent trimming, it remains one of Berkshire’s largest positions.

This is the company that Berkshire is aggressively accumulating

There’s one oil competitor that could soon replace Chevron as Berkshire’s fifth-largest position: Occidental Petroleum (OXY -3.18%). Compared to Chevron, this is a much more complex story. But Buffett is clearly bullish. Last quarter, Berkshire bought more than 7 million additional shares, bringing its total ownership of the company up to 27.3%. The firm has received approval to eventually acquire up to 50% of the company, but Buffett has denied interest in taking over complete control of the company..

What does Buffett like so much about Occidental? For one, he thinks the business is incredibly well run. After reading every word of the company’s annual report, Buffett told investors that “this is exactly what I would be doing” were he in charge of Occidental. CEO Vicki Hollub, he added, is “running the company the right way.”

But it’s more than just operational excellence. While it technically is an integrated oil business, Occidental is heavily exposed to its upstream segment. That gives the company direct leverage to rising oil prices.

As with Chevron, Occidental investors must be bullish on long-term oil prices. Buffett clearly is optimistic, and betting on he believes are two of the best-run oil operations in the industry is a classic move by the Oracle of Omaha.