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

Occidental Petroleum's 2019 acquisition of Anadarko, funded in part by Berkshire Hathaway, aimed to transform OXY into a competitor with integrated energy giants; however, the deal burdened the company with debt, leading to a dividend cut and stock plunge during the 2020 energy market downturn. While recent acquisitions like Crown Rock and Holocene signal continued growth ambitions, OXY's current low dividend yield of 2.2% and high P/E ratio of 18 position it as a growth-oriented play, requiring careful monitoring of management's execution to avoid repeating the challenges of the Anadarko deal.

Analysis

Occidental Petroleum's strategic direction is heavily influenced by its ambition to scale its operations to compete with integrated energy majors, a goal underscored by its 2019 acquisition of Anadarko Petroleum. While this move, supported by Berkshire Hathaway, was intended to significantly enhance its U.S. onshore presence and drive long-term growth, it resulted in a substantial increase in OXY's debt burden. This leverage became particularly problematic during the 2020 energy market downturn, leading to a sharp decline in OXY's stock price and a significant dividend cut; the dividend, while recovering, remains well below its pre-2020 levels, and the stock price has not fully recovered from the Anadarko transaction's aftermath. Recent acquisitions, such as Crown Rock for oil and gas expansion and Holocene for carbon capture, reaffirm management's commitment to this growth trajectory. However, OXY currently presents as a growth-focused investment, characterized by a dividend yield of approximately 2.2%, below the energy sector average of 3.5%, and a price-to-earnings ratio near 18, which is above the industry average of roughly 16. The continued backing by Berkshire Hathaway is a notable factor, but the primary concern remains management's execution capability, given the precedent of the Anadarko acquisition's financial strain.

Key Decisions for Investors

• Investors should primarily view Occidental Petroleum as a long-term growth opportunity, contingent on successful execution of its expansion strategy and integration of new assets like Crown Rock and Holocene.
• Given the current dividend yield of approximately 2.2% and a price-to-earnings ratio of nearly 18, income-focused and value-oriented investors might find OXY less attractive compared to peers, warranting a focus on its growth prospects.
• A critical factor to monitor will be the company's management of its balance sheet and debt levels, particularly in light of future M&A activity, to mitigate risks similar to those experienced post-Anadarko acquisition.