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Occidental Petroleum (NYSE: OXY) is a Texas-based company engaged in the process of exploration of hydrocarbon across the regions of the United States, the Middle East, Africa, and Latin America. Occidental’s stock had a rough 2020 but since the end of last year, the company’s fortunes started to change.
Thanks to the supply-demand imbalance as well as the rising price levels due to inflation, shares of the energy heavyweight have been gaining momentum in 2022.
Occidental Petroleum stock has gained over 90% year-to-date, crushing the broader market returns by a wide margin. Moreover, Warren Buffett’s Berkshire Hathaway increased its stake in Occidental Petroleum in recent months making it all the more attractive to investors.
So, considering the recent momentum in the oil industry and the prospects Occidental Petroleum possesses does this stock make a worthwhile buy at this moment?
Occidental Petroleum is a hedge against Inflation
Inflation around the world reached record-high levels in May. The U.S. itself is experiencing inflation of 8.6% which is the highest it has ever experienced over the past 40 years. Moreover, the Russia-Ukraine conflict has led to a rapid increase in the price of Brent crude. Sky-high gas prices coupled with the worst inflation readings have made the oil and gas stocks highly attractive.
The market expects this rally to continue for a longer period. Oil producers in the US too have ramped up their production levels to about 11.85 million barrels per day this year compared to the 11.18 million barrels per day they used to produce last year to capitalize on this high demand phase. These numbers are expected to rise further probably by the end of this year.
Therefore, as the oil price levels continue to rise in the coming days, oil and gas stocks like Occidental Petroleum will be able to book higher revenues and thus inflate their profits much more. Further, the tax incentives the company receives for carbon capture before it releases its emissions into the atmosphere is another catalyst for its growing revenues.
So, in this inflationary market one can preserve their cash or simply hedge their portfolio from inflation to a large extent by investing in stocks like Occidental Petroleum.
Occidental Petroleum was able to deliver its third consecutive record quarterly earnings in the first quarter of 2022. Its net income for Q1 stood at $4.7 billion translating to earnings of $4.65 per share. This was substantially higher when compared to last year’s net income of $1.3 billion or $1.37 per share.
Wall Street expects Occidental Petroelum to increase revenue by 40.6% to $37 billion in 2022. Further, its adjusted earnings per share might rise by an astonishing 316% to $10.62 per share this year. We can see why Warren Buffett increased exposure to this energy company in recent months.
OXY stock pays investors a steady dividend
Most investors love to invest in dividend stocks. Occidental Petroleum provides dividends yielding 0.90%. The company had reduced its payouts since the pandemic due to unfavorable market conditions but has always been consistent with its payments over the past four decades irrespective of market conditions.
The stock closed trading last week at $$60.44 and the average analyst price target for the stock is $75. This is a potential upside of over 25%
The oil sector despite its volatility is performing really well in the present times. So, if anyone wants to capitalize on the current momentum of the energy sector they can invest in stocks like Occidental Petroleum. Besides, the long-term prospects of OXY stock are attractive making it can be a good long-term buy as well.