Random Thought

Nov. 15 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. became the largest shareholder in oil producer ConocoPhillips and took a stake in manufacturer Eaton Corp. in the third quarter as stock markets tumbled.

Berkshire had more than 83 million shares in Houston-based ConocoPhillips as of Sept. 30, compared with about 17.5 million on March 31, the company said yesterday in a regulatory filing. Buffett also disclosed a reduced holding in Bank of America Corp. and more shares of NRG Energy Inc., the second-biggest power producer in Texas. The Standard & Poor’s 500 Index dropped 8.9 percent in the three months ended Sept. 30.

Berkshire, which purchased MidAmerican Energy Holdings in 2000 and reported record profits last year from selling holdings of PetroChina Co., is betting on a long-term increase in energy demand worldwide. Global oil consumption will increase about 25 percent to 106 million barrels a day by 2030, the International Energy Agency said this week.

“Buffett is thinking decades ahead,” said Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of hedge fund Ram Partners LP. “He’s thinking about oil production falling and an eventual doubling of worldwide demand as countries like China reach U.S. levels.”

ConocoPhillips traded as low as $67.31 a share in the third quarter after closing 2007 at $88.30. The company slipped $1.79, or 3.6 percent, to $47.39 in New York Stock Exchange composite trading yesterday before Berkshire’s disclosure.

Waiting for Spring

Buffett, the world’s preeminent stock picker, has said he’s also spending his own money to buy U.S. stocks as prices decline amid the worst financial crisis in 75 years. Buffett is Berkshire’s chief executive officer and makes most of the firm’s investing decisions.

Berkshire held about 59.7 million ConocoPhillips shares as of June 30, Buffett revealed in a separate filing. Buffett, 78, won permission from regulators to omit that number from his second- quarter filing and withhold it until yesterday to prevent copycat investing.

ConocoPhillips rose 86 cents, or 1.8 percent, to $48.25 at 7:59 p.m. in New York in extended trading. Bill Tanner, a spokesman for ConocoPhillips, had no immediate comment.

Berkshire increased holdings in NRG Energy by 54 percent to 5 million shares, a 2.2 percent stake. The firm was the object of a takeover offer from Exelon Corp. after the Princeton, New Jersey- based company lost half of its market value in two months. NRG’s board of directors this month rejected the offer.

Buffett also disclosed a 1.8 percent stake in Cleveland-based Eaton, the maker of parts for Boeing Co. planes and Volkswagen AG cars.

Eaton Corp.

“Eaton fits exactly with his investment strategy,” said Gerald Martin, a finance professor at American University’s Kogod School of Business in Washington. “He likes to say that he wants to invest in companies that he can understand, that he can really get his arms around, and take a look at them and project their cash flows.”

Eaton rose $1.44, or 3.5 percent, to $42.55 in extended trading. Prices for new Berkshire holdings typically jump as mutual funds and individual investors mimic the stock picks. Martin co-wrote a study in 2007 that found buying after such disclosures would have delivered annualized returns of about 25 percent over 31 years, double the performance of the S&P 500. Eaton spokesman Peter Parsons declined to comment.

Buffett cut his stake in Bank of America by almost half, while increasing his investment in U.S. Bancorp. Charlotte, North Carolina-based Bank of America, which purchased money-losing mortgage lender Countrywide Financial Corp. in July, has lost 64 percent of its market value in the last 12 months.

Changing Perceptions

“It’s pure speculation on my part, but it could be that the Countrywide acquisition changed his perception,” Martin said of Buffett.

Bank of America spokesman Scott Silvestri had no comment.

The U.S. Bancorp holdings rose 6.3 percent to 72.9 million shares from the second quarter. Berkshire is the Minneapolis-based bank’s largest shareholder. Buffett lowered the stake in Wells Fargo & Co., the largest bank on the U.S. West Coast, less than a percent to 246.4 million shares.

Buffett cut his stake in Home Depot Inc., the largest U.S. home-improvement store, by 12 percent to 3.7 million shares and trimmed holdings of No. 2 Lowe’s Cos. by 7 percent to 6.5 million. Holdings of CarMax Inc., the largest U.S. used-car dealer, fell 13 percent to 18.4 million.

Berkshire is also the largest shareholder of companies including Coca-Cola Co. and American Express Co. as of Sept. 30, with a portfolio worth $76 billion. Buffett discloses non-U.S. holdings in filings with regulators in those countries.

Buffett, named America’s richest man by Forbes magazine, built Berkshire from a failing textile manufacturer into a $155 billion holding company by investing premiums from insurance subsidiaries such as Geico Corp. in out-of-favor securities and buying businesses whose management he deemed superior.

Berkshire shares, which rose in 17 of the last 20 years, are down about 29 percent since Dec. 31.

By Erik Holm, Edward Klump and Linda Shen source