If you’re an investor in Occidental Petroleum (OXY +4.94%), or are thinking of becoming one, you may be wondering: Where will Occidental be in three years, and should you be a shareholder? It’s a hard question to answer, but here’s a review of some considerations.
First off, know that Occidental Petroleum is a major energy company, with a recent market value topping $56 billion. It’s focused on finding, producing, marketing, and transporting oil and natural gas. (It has a lofty tag line, too: “We unlock potential by reaching for the impossible and achieving it.”)
Image source: Getty Images.
Green lights for Occidental
Here are some reasons why you might consider investing in Occidental Petroleum:
- It’s performing well, beating expectations in its recently reported quarter.
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It has been carrying a lot of debt, but it’s also been paying down a lot of debt. In its most recent quarter, management pointed out that the company has been “repaying $7.1 billion of principal debt through May 5 and reducing principal debt to $13.3 billion, and progressing toward [the] $10.0 billion milestone.” (Selling its chemicals business helped with debt reduction.)
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The Iran war has provided a tailwind to Occidental and other energy companies, sending oil prices soaring.
- It pays a dividend, recently yielding 1.9%, but it cut its payout almost completely in 2020. It has since been hiking its dividend considerably in recent years.
- Its stock valuation seems reasonable at recent levels, with a recent forward-looking price-to-earnings (P/E) ratio of 12.6, a bit below the five-year average of 13.1.
- If you buy shares, you’ll be in good company, as Occidental is a major holding of Warren Buffett’s company, Berkshire Hathaway. Indeed, Berkshire recently owned nearly 27% of the company, reflecting a lot of confidence in its future.
Today’s Change
(4.94%) $2.81
Current Price
$59.65
Key Data Points
Market Cap
$59B
Day’s Range
$57.57 – $59.67
52wk Range
$38.80 – $67.45
Volume
811K
Avg Vol
17M
Gross Margin
32.14%
Dividend Yield
1.64%
Cautions for Occidental
This stock, like most, is not a no-brainer investment, so keep some cautions in mind, such as:
- Its performance has been lumpy in recent years, with an average annual gain of 20.2% over the past five years, but less than 0.5% over the past three and 10 years. Over the past 15 years, it has averaged an annual loss of 1.25%, but year to date (as of May 13), it’s up more than 37%! (Whew!)
- A resolution to the Iran war might lead to falling oil prices, which could hurt the company’s profitability.
Where will Occidental be in three years?
Let’s face it — no one can really know. We don’t know how the war with Iran will play out, after all. Given that shares seem reasonably valued, it seems fair to assume that they will have appreciated at least a little (if not a lot) in three years. If they keep pace with the S&P 500‘s average annual gain of around 10%, they might go from a recent $56.80 per share to $75.60.
If you’re thinking about investing in it, do some more research and perhaps aim to hold the stock for longer than three years, too.
Selena Maranjian has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
