Is it advisable to purchase Occidental Petroleum when its share price falls below $50?
In the world of investments, finding a company with a promising future and a current discount can be a golden opportunity. One such company, Occidental Petroleum (OXY), is currently trading below $50 per share, offering an attractive entry point for investors.
Berkshire Hathaway's Cost Basis Advantage
Berkshire Hathaway, a major investor in Occidental, acquired its stake at a price above $60 per share. Buying below $50 offers an opportunity to acquire shares substantially below this institutional cost basis, implying potential for value appreciation or takeover considerations.
Diversification Beyond Oil
Occidental has significant non-oil assets such as its Chemical segment and growing carbon capture and storage (CCS) operations. These segments provide revenue diversification, cushioning the company from pure oil price volatility. The CCS business aligns with global decarbonization trends and may unlock valuable long-term potential.
Debt Repayment Strategy
Occidental is actively focused on reducing its debt from past acquisitions, improving its balance sheet strength. A better debt position enhances financial stability and lowers risk, making the stock more attractive at suppressed prices.
Upside from Oil Prices and Supply Issues
Occidental’s earnings and stock price are sensitive to oil prices. Higher oil prices driven by supply constraints or geopolitical factors could significantly boost Occidental’s profitability, providing a catalyst for stock price appreciation.
Reasonable Valuation Metrics
With a P/E ratio of about 18 and a dividend yield around 2.2%, the stock appears reasonably valued relative to earnings and offers income, with prospects for dividend coverage improvement as earnings grow.
Analyst Outlook and Price Forecast
Forecasts suggest potential stock price appreciation into the $60-$70 range over 2025, indicating current sub-$50 levels may represent a buying opportunity ahead of expected upward trends.
Upside Catalysts
Occidental has many upside catalysts, many of which don't rely on improving oil prices. For instance, the company's chemical business (OxyChem) is expected to deliver over $450 million of incremental free cash flow in 2026. Additionally, Occidental's debt repayment strategy is projected to deliver over $135 million in annual interest expense savings in 2026.
One of the most exciting developments is Occidental's carbon capture and storage business. The company's initial direct air capture (DAC) unit, Stratos, is set to start this year and reach full capacity by mid-2026. This venture could generate additional revenue and further diversify Occidental's income streams.
Conclusion
Given the dip in price and the presence of upside catalysts, Occidental Petroleum looks like a buy for those seeking lower-risk exposure to the oil market. Berkshire Hathaway's investment in Occidental is worth more than $12.6 billion, and the company holds warrants to buy another $5 billion of Occidental's stock at $59.62 apiece. With these factors in mind, investing in Occidental Petroleum below $50 could be a shrewd move for those looking to capitalize on its promising future.
Investing in Berkshire Hathaway's stake in Occidental Petroleum (OXY) could provide potential for value appreciation, as buying below $50 per share offers an opportunity to acquire shares substantially below the institutional cost basis.
Occidental's non-oil assets, such as its Chemical segment and growing carbon capture and storage (CCS) operations, offer revenue diversification and align with global decarbonization trends, presenting long-term potential.
Despite the focus on reducing debt, Occidental's improved balance sheet strength lowers risk and enhances financial stability, making the stock more attractive at suppressed prices.
