Should You Buy Occidental Petroleum While It's Below $50?

Occidental Petroleum's stock has declined due to falling oil prices, but the article suggests it's a buy below $50, noting that Warren Buffett's Berkshire Hathaway owns a significant stake with a cost basis in the low $50s and continues to add to its position. Occidental anticipates a $1.5 billion free cash flow boost by 2027 from its chemical and midstream businesses, and debt repayment, independent of oil prices, which could further enhance shareholder value; additionally, potential upside exists from geopolitical events impacting oil prices and the development of its carbon capture business.

Analysis

Occidental Petroleum's (OXY) stock has experienced a decline, falling from over $60 to below $50 per share, primarily attributed to a decrease in oil prices from above $80 to the low $70s per barrel. This price movement has positioned the stock below the apparent buying threshold of Berkshire Hathaway, which has accumulated a substantial 26.9% stake, representing over 264.9 million shares valued at more than $12.6 billion, with a cost basis in the low $50s, and has consistently added to its position when the stock dips below $50 per share. Beyond the influence of oil prices, Occidental anticipates a significant approximately $1.5 billion enhancement in its free cash flow by 2027, driven by non-oil related factors; this includes over $450 million from its OxyChem division due to expansion projects and reduced capital expenditure, approximately $450 million from its midstream business through new contracts and lower spending, and over $135 million in annual interest savings from debt repayment, with these initiatives expected to contribute to a $1 billion boost in free cash flow by 2026. This improved and more stable cash flow base is projected to support enhanced shareholder value via dividend increases, share repurchases, including redemption of Berkshire's preferred stock, and additional debt reduction. Furthermore, Occidental possesses additional upside catalysts, including potential oil price appreciation stemming from geopolitical instability or supply disruptions, and the burgeoning carbon capture and storage business, highlighted by the Stratos direct air capture unit starting up this year and aiming for full capacity by mid-2026, which could generate revenue through carbon credit sales and demonstrate the commercial viability of this technology for long-term growth.

Key Decisions for Investors

• Investors could view Occidental Petroleum's current stock price below $50 as a strategic entry point, particularly given Berkshire Hathaway's consistent accumulation at these levels and its significant stake.
• It is advisable to monitor the execution of Occidental's non-oil business segments, specifically the OxyChem expansions, midstream contract renewals, and the progress of the Stratos carbon capture project, as these are crucial for achieving the projected $1.5 billion free cash flow improvement by 2027.
• While the company is building resilience through diversified cash flows, investors should maintain awareness of oil price fluctuations and geopolitical risks, as these factors will continue to exert considerable influence on Occidental's financial performance and stock valuation.