Could Buying Occidental Petroleum Stock Today Set You Up for Life?

Occidental Petroleum's (OXY) growth strategy, highlighted by its 2019 acquisition of Anadarko, aims to compete with integrated energy giants; however, the deal significantly increased the company's debt, leading to a dividend cut and stock plunge during the 2020 market downturn. While recent acquisitions like Crown Rock and Holocene expand OXY's portfolio, the company is now more of a growth stock than an income or value play, requiring investors to closely monitor execution risks given the challenges following the Anadarko deal.

Analysis

Occidental Petroleum (OXY) is pursuing an ambitious growth strategy aimed at transforming the company into a larger, more diversified energy player comparable to integrated giants like Chevron. This strategy was notably underscored by the 2019 acquisition of Anadarko Petroleum, a move financed with assistance from Berkshire Hathaway, which significantly expanded OXY's U.S. onshore presence. However, this acquisition burdened OXY with substantial debt, leading to severe financial strain during the 2020 energy market downturn, resulting in a stock price collapse and a dividend cut from which it has not fully recovered; the current dividend yield is approximately 2.2%, below the energy sector average of around 3.5%. Despite these past challenges, OXY continues its growth trajectory with recent acquisitions such as Crown Rock, to bolster its oil and gas operations, and Holocene, to enter the carbon capture market. Consequently, OXY's investment profile is predominantly that of a growth story, rather than an income or value proposition, as evidenced by its price-to-earnings ratio of nearly 18, which is above the industry average of roughly 16. The continued significant shareholding by Warren Buffett's Berkshire Hathaway may offer some investor confidence, but the Anadarko experience highlights a persistent execution risk, particularly concerning management's ability to integrate large acquisitions without overleveraging the balance sheet. The overall market sentiment for OXY is slightly negative, reflecting this balance of ambitious growth potential against historical execution missteps and current valuation metrics.

Key Decisions for Investors

• Investors should primarily view Occidental Petroleum as a growth-focused investment, recognizing that its current dividend yield of 2.2% is below the industry average and its P/E ratio of nearly 18 suggests it is not a value play.
• Careful monitoring of management's execution on its expansion plans, particularly concerning debt levels and the integration of recent acquisitions like Crown Rock and Holocene, is crucial given the financial difficulties experienced after the Anadarko deal.
• Potential investors should assess their risk tolerance for a company with a history of aggressive, debt-fueled acquisitions and acknowledge that while success could yield substantial returns, the risk of management overextending itself remains a key consideration.