OXY
Key Points
- Research suggests buying Occidental Petroleum (OXY) at current prices around $42.90 is reasonable, as Warren Buffett is actively purchasing shares.
- The evidence leans toward a purchase price of $40–$45, offering a small margin of safety based on Buffett’s recent buying activity.
- It seems likely that OXY’s long-term potential, including its asset base and carbon capture initiatives, justifies Buffett’s confidence despite industry volatility.
Current Market Context
As of June 3, 2025, OXY’s stock price is $42.904, and Buffett’s recent purchases at similar levels indicate he sees value. This aligns with his value investing approach, focusing on companies with long-term potential.
Recommended Purchase Price
Given Buffett’s buying at $46.78 in February 2025 and the current price being lower, a reasonable range is $40–$45. This provides a margin of safety, considering OXY’s volatile earnings and industry challenges.
Why This Price?
Buffett’s confidence likely stems from OXY’s significant reserves, Permian Basin presence, and carbon capture investments, which could drive future growth. The 2.33% dividend yield at current prices adds appeal, though earnings volatility remains a risk.
Survey Note: Detailed Analysis of Occidental Petroleum Investment from Warren Buffett’s Perspective
This analysis evaluates Occidental Petroleum Corporation (OXY) as an investment opportunity, adopting Warren Buffett’s value-oriented philosophy. It examines OXY’s financial performance over the past decade, valuation metrics, industry context, and Buffett’s recent investment activity to determine a reasonable purchase price as of June 3, 2025.
Financial Performance (2015–2024)
OXY’s financials, sourced from MacroTrends financial statements, show significant volatility, typical for the oil and gas sector:
| Year | Revenue ($M) | Net Income ($M) | EPS (Diluted) ($) |
|---|---|---|---|
| 2015 | 12,480 | -7,829 | -10.23 |
| 2016 | 10,090 | -574 | -0.75 |
| 2017 | 12,508 | 1,305 | 1.70 |
| 2018 | 17,824 | 4,131 | 5.39 |
| 2019 | 20,911 | -985 | -1.22 |
| 2020 | 17,809 | -15,675 | -17.06 |
| 2021 | 25,956 | 1,522 | 1.58 |
| 2022 | 36,634 | 12,427 | 12.40 |
| 2023 | 28,257 | 3,752 | 3.90 |
| 2024 | 26,725 | 2,364 | 2.44 |
- Revenue Growth: Increased from $12.48 billion in 2015 to $26.73 billion in 2024, with a CAGR of approximately 8.5%, though volatile due to commodity price cycles.
- Net Income: Experienced significant losses in 2015, 2016, 2019, and 2020, with peaks in 2022 ($12.43 billion) and declines in 2024 ($2.36 billion).
- EPS: Reflects volatility, ranging from -$17.06 in 2020 to $12.40 in 2022, with 2024 at $2.44.
This volatility might concern Buffett, who prefers stable earnings, but the oil and gas industry’s cyclical nature is well-known.
Valuation Metrics
Using the most reliable data from the finance_api, OXY’s current stock price on June 3, 2025, is $42.904. Additional valuation metrics include:
- Forward EPS Estimate for 2025: Analysts estimate $2.21, sourced from WallStreetZen stock forecast.
- Forward P/E Ratio: Calculated as $42.904 / $2.21 ≈ 19.41.
- Industry Average P/E Ratio: For Oil & Gas E&P, the average is 12.42, from FullRatio industry P/E ratios.
- Price to Book (P/B) Ratio: Book value per share is $28.05 (from GuruFocus book value), so P/B = $42.904 / $28.05 ≈ 1.53.
Comparison:
- OXY’s forward P/E of 19.41 is higher than the industry average of 12.42, suggesting a premium valuation.
- Expected earnings growth is 4.7% per year, lower than the industry average of 11.84%, making the higher P/E harder to justify.
- The P/B ratio of 1.53 is reasonable but not low, indicating the stock is not deeply undervalued compared to book value.
Buffett’s Investment Activity
Buffett’s Berkshire Hathaway owns approximately 28.2% of OXY as of February 2025, making it a significant holding. Recent purchases include:
- 763,017 shares in February 2025 at $46.78 per share, totaling $35.7 million, from Investopedia Berkshire stake.
- Earlier purchases at prices like $59.75 in June 2024, indicating a buying range of $40–$60.
Buffett’s continued buying, even as the stock price has dropped (e.g., current price $42.904 vs. recent purchases at $46.78), suggests he sees undervaluation. This could be due to:
- Asset Base: OXY’s significant reserves, especially in the Permian Basin, may be undervalued on the balance sheet.
- Carbon Capture Initiatives: Investments in carbon capture and storage (CCS) could position OXY for future growth as the energy sector transitions.
- Dividend Yield: OXY pays a quarterly dividend of $0.24, annualizing to $0.96, yielding 2.33% at current prices, from MacroTrends dividend yield.
Industry and Competitive Context
The oil and gas industry faces volatility due to commodity prices and a long-term shift to renewables. OXY’s position as a major player with operations in the US, Middle East, and Latin America provides scale, but its moat is not as strong as in other industries due to competition from Exxon, Chevron, and others. The industry average P/E of 12.42 and P/B ratios (typically 0.88–1.5 for peers, from GuruFocus PB ratio) suggest OXY’s valuation is at the higher end.
Determining a Reasonable Purchase Price
To align with Buffett’s philosophy, we seek a price offering a margin of safety:
- Current Price: $42.904.
- Buffett’s Buying Range: Recent purchases at $46.78 and historical buys at $59.75 suggest he’s comfortable in the $40–$60 range.
- Valuation Approach: Using the industry average P/E of 12.42, a “fair” price would be 12.42 * $2.21 ≈ $27.47, but Buffett’s actions indicate he values OXY higher, likely due to assets and future potential.
- Margin of Safety: Given volatility, a reasonable purchase price is $40–$45, slightly below recent buys, providing a buffer. At $42.904, OXY is already within this range, making it a potential buy.
Risks and Considerations
- Earnings Volatility: OXY’s earnings fluctuate with oil prices, a concern for Buffett, who prefers stability.
- Industry Transition: The shift to renewables could impact long-term demand, though CCS mitigates this.
- Debt Levels: OXY’s ability to reduce debt and initiate buybacks, as Buffett desires, is crucial for future value.
Conclusion
From Buffett’s perspective, buying OXY at current prices around $42.90 is reasonable, as he is actively purchasing shares at similar levels. A purchase price of $40–$45 offers a small margin of safety, aligning with his recent buying activity and confidence in OXY’s long-term potential, including its asset base and carbon capture initiatives. Investors should be aware of industry volatility and ensure diversification, given the risks.