Warren Buffett has been showing strong bullishness over the integrated oil and gas company Occidental Petroleum. He has been buying shares of the energy company since the beginning of the year and currently had a stake in Occidental Petroleum at 20.2%. However, Warren Buffett’s Berkshire Hathaway on Friday received regulatory approval to purchase up to 50% of oil giant Occidental Petroleum, as quoted on CNBC.
The CNBC article went on to explain that on July 11, Berkshire filed an application with the Federal Energy Regulatory Commission to buy more of the oil company’s common stock in secondary market transactions. The conglomerate argued that a maximum 50% stake wouldn’t hurt competition or diminish regulatory authority.
“He will likely continue to buy as much as he can get below $70 or $75. If you own 30% or 40% and would like to buy it out at $95 or $100, you saved a lot of money,” said Cole Smead, president of Smead Capital Management and a Berkshire shareholder.
Oil Price Has a Purely Upbeat Outlook in 2022
U.S producers expect to keep oil production flat this year as output cannot be ramped up instantly amid soaring crude prices, said Oxy CEO Vicki Hollub, as quoted on CNBC. Aging wells, labor shortages and higher raw materials prices because of supply chain issues have been posing threats. In the peak of the pandemic, most oil companies went for capex cuts due to lackluster demand.
Now, the sudden jump in demand thanks to the better COVID-19 management and geopolitical crisis in East Europe and Middle East may not enable companies to take the advantage fully by increasing production very fast. But yes, oil and gas explorers can definitely benefit from the rising crude prices.
Occidental Has a Bullish Outlook
OXY has a Zacks Rank #3 (Hold) with upbeat sector rank. The stock has an upbeat VGM (Value-Growth-Momentum) score of A.
What Do Indicators Say About Occidental’ Valuations?
Going by valuation metrics, P/E (ttm) of OXY is 9.3 times versus the industry-average of 6.5 times. Forward P/E of OXY is 6.6 times versus the industry score of 4.6 times. Though these measures point to the higher valuation of Occidental than the industry, a higher P/E is always not a sign of worry. It shows investors’ confidence in a particular stock among the bunch.
Investors should note that return-on-equity of Occidental is 60.2%, higher than industry average of 24%. The estimated 3-5-year EPS growth of Occidental is now 15.5% versus 13.6% of the industry measure.
ETFs to Tap
To tap the optimism associated with Occidental Petroleum, investors can play Occidental-heavy ETFs as the basket approach reduces company-specific risks.
First Trust Nasdaq Oil & Gas ETF – OXY has 9.05% Weight
John Hancock Multifactor Energy ETF – OXY has 6.94% Weight
Invesco Dynamic Energy Exploration & Production ETF –OXY has 5.67% Weight
Invesco S&P 500 Equal Weight Energy ETF –OXY has 5.55% Weight
Energy Select Sector SPDR Fund – OXY has 4.56% Weight