It’s no secret that Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) CEO Warren Buffett likes Occidental Petroleum (NYSE:OXY). Now, you don’t have to buy OXY stock just to copy the Oracle of Omaha. There are other, perfectly valid reasons to invest in Occidental Petroleum right now.
After delving into the data, you’ll certainly see why Berkshire and Buffett would favor Occidental Petroleum. First, however, we need to clear up a myth that’s been circulating for too long. After all, it’s better to know the truth than to base your investment decisions on false hope and misinformation.
The Wrong Reason to Buy OXY Stock
If you’re thinking about buying OXY stock because you expect Berkshire Hathaway to acquire Occidental Petroleum, here’s a news flash for you. Buffett made it crystal clear in Berkshire’s annual shareholder letter that the company “has no interest in purchasing or managing” Occidental Petroleum.
Sorry to break that news, but no one should invest in Occidental Petroleum because they think Buffett is going to buy the company outright. On the other hand, Berkshire Hathaway still has a massive, 27.8% share stake in Occidental Petroleum. Furthermore, Buffett assured, “[W]e very much like our ownership” in Occidental Petroleum.
Yet, this begs the question of why Berkshire and Buffett like to buy OXY stock. Unfortunately, Buffett isn’t known for expressly stating why he buys specific stocks.
I do know that Buffett favors dividend-paying companies, though. Occidental Petroleum recently hiked its quarterly dividend payment by 22% to 22 cents per share. Hence, if you’re a patient long-term investor like Buffett, you have at least one reason to consider Occidental Petroleum stock.
Occidental Petroleum Is a Highly Active Oil Driller
In general, Buffett also prefers to invest in businesses that aren’t overvalued and which have solid fundamentals. Does Occidental Petroleum check these Buffett boxes?
The last time I checked, Occidental Petroleum had a trailing 12-month price-to-earnings ratio of around 16x. In a time when many highflying large-cap stocks trade at 30 times earnings or more, Occidental Petroleum doesn’t seem overvalued at all.
What about Occidental Petroleum’s fundamentals? We can check the company’s fourth-quarter 2023 financial results for some clues about that.
As it turns out, Occidental Petroleum’s quarterly revenue of $7.17 billion beat Wall Street’s call for $6.84 billion. Moreover, the company’s adjusted EPS of 74 cents surpassed the analysts’ consensus estimate of 67 cents.
Additionally, Occidental Petroleum is a highly active petroleum producer, and I’m sure Buffett is fully aware of this.
In 2023’s fourth quarter, Occidental Petroleum produced an average of 1.234 million barrels of oil equivalent per day. This represents a quarter-over-quarter increase of 7,000 barrels of oil equivalent per day, on average.
Want to Be Like Buffett? Go Get Some OXY Stock.
Overall, it’s not difficult to figure out why Buffett might favor a company like Occidental Petroleum. It’s a consistently profitable business as well as a highly productive one that pays a decent dividend.
Besides, Occidental Petroleum isn’t too richly valued and appears to be on solid financial ground. Therefore, even if Berkshire Hathaway won’t acquire Occidental Petroleum, you should think about being like Buffett and buying some OXY stock.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
