This week’s Big Cap 20 stock is Occidental Petroleum (OXY), Warren Buffett’s favorite oil stock. It achieved that honor because it’s in a buy zone after crossing the 72.14 buy point from a cup-with-handle base. This market leader was Monday’s IBD 50 Growth Stocks To Watch pick.
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OXY shares have gained 6% over the last five sessions and 152% so far this year, defying the market’s downtrend. They are now trading above their 50-day line and well above their 200-day moving average.
The relative strength line is hitting new highs at the same time, highlighted by the blue dot on the daily MarketSmith chart.
Analysts predict Occidental will report a profit of $10.24 per share in 2022, up more than 300% from last year. Sales are expected to jump 43% to $37.3 billion over the same period.
The company reports Q3 results on Nov. 8, with consensus for earnings of $2.50 per share, according to FactSet. That would mark an impressive 185% year-over-year growth surge.
Berkshire Hathaway has increased its OXY stake to 20.9%, with warrants that could bring the stake up to more than 25% of outstanding shares, according to SEC filings. This comes after the Federal Energy Regulatory Commission (FERC) granted Buffett’s company approval on Aug. 19 to purchase up to 50% of the energy giant.
Could Occidental Be Taken Private?
Harold Hamm, founder of Oklahoma’s Continental Resources (CLR), announced plans to buy the rest of the $26-billion energy producer last week. Occidental may be the next superstar to be taken private.
A Wall Street Journal report speculates that, given “Berkshire Hathaway’s value-driven DNA, though, it might take a big drop in oil prices to prompt an acquisition of that scale.”
Oil and gas stocks have consistently outperformed the 2022 market and Houston-based Occidental Petroleum is one of the top S&P 500 performers. It has benefited from higher fuel prices, triggered by inflation and Russia’s invasion of Ukraine in February. However, crude oil has slumped since peaking in June, dropping below $85 per barrel earlier this week.
Oxy’s primary business in oil, natural gas liquids and natural gas hasn’t been dented, at least so far. On the other hand, the heavyweight has a petrochemicals segment that has struggled since home sales have imploded.
The Oxychem division makes PVC pipe and is one of the three largest suppliers. This chlorinated hydrocarbon and plumbing product is made from natural gas and salt.
Tudor Pickering analyst Matt Portillo lowered his earnings estimates this month, warning that PVC pricing is in “absolute free fall.”
Tudor is not the only research firm to trim its target price on Occidental. Mizuho and Morgan Stanley also cut target prices this month while Barclays went the other way, raising its target to $84 per share.
Top-Ranked Oil Stock In A Top-Ranked Industry
Not everyone is on board with Berkshire’s stake and some influential analysts believe that Buffett’s position is a reason to not buy shares.
“All in, we think OXY is executing well and still has legs to the transformation of its capital structure, but the outperformance in shares, led by buying activity on the common shares from Berkshire Hathaway, keeps us on the sidelines, given a lack of clarity on Berkshire’s ultimate intentions,” JPMorgan analyst John Royall wrote in a memo to investors last month.
OXY stock is ranked seventh in the Oil & Gas-International Exploration & Production subsector, which is No. 9 out of 197 industry groups, according to IBD Stock Checkup.
Other top-ranked companies in the group include APA (APA) ConocoPhillips (COP) and Hess (HES).
Occidental holds a 98 Relative Strength Rating, a perfect 99 Composite Rating and a strong “B” Accumulation/Distribution Rating.
This last metric tells investors that institutions are buying the stock more aggressively. However, the percentage of investment funds owning the stock in the third quarter has dropped 2%. Investors hope this trend improves into the end of 2022.
Follow Michael Molinski on Twitter @IMmolinski
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Source: https://www.investors.com/stock-lists/ibd-big-cap-20/warren-buffett-favorite-oil-stock-breaks-out-enters-buy-zone/?src=A00220&yptr=yahoo