Occidental Petroleum Looks Good, but Monitor Oil Prices

Whether by skill, or simply by accident, investors of Occidental Petroleum (NYSE:OXY) caught an upward price move in OXY stock. This might feel good, and could lead Occidental’s investors to double down in anticipation of upside momentum.

A magnifying glass zooms in on the Occidental Petroleum (OXY) website.
Source: Pavel Kapysh / Shutterstock.com

Yet, it’s not wise to allow euphoric feelings to dominate your investment strategy. Sometimes, a stock can ride higher based on factors that are out of a company’s control — and a positive catalyst can evaporate at any given moment.

This is particularly true when it comes to oil and natural gas producers like Occidental Petroleum. While the company is headquartered in Houston, Texas, events taking place across the world can help or hinder Occidental’s performance.

I’m certainly not suggesting that investors should avoid energy investments completely. Occidental Petroleum is a solid business overall, but investors can’t afford to ignore the ups and downs of commodity prices.

OXY Stock at a Glance

First things first. Occidental Petroleum offers a forward annual dividend yield of 1.34%. Therefore, optimistic investors will have to depend mainly on share-price appreciation, rather than on dividend payments.

Next, we should take a look at OXY stock’s five-year monthly beta, which is 2.12. This indicates that the stock has historically tended to move twice as fast, in both directions, as the S&P 500. This could work in the shareholders’ benefit if the stock is in an uptrend.

Now, we should address the recent performance of Occidental Petroleum shares. Frustratingly, from early March 2021 through the end of that year, the stock chopped around and basically went nowhere.

However, OXY stock rallied in early 2022, first peaking on Feb. 11 at $43.16. It then it pulled back slightly, but the multi-month uptrend appears to still be intact.

And now this week, OXY stock looks like it is reaching new highs as Russia’s invasion of Ukraine continues to disrupt the energy market.

Not a Coincidence

The billion-dollar question, then, is: what prompted the early-2022 rally in the Occidental share price?

In all likelihood, we can attribute the stock-price rally to an old saying on Wall Street: a rising tide lifts all boats.

Surely, it’s not a coincidence that OXY stock spiked while the oil and natural gas prices were rising. This was bound to boost Occidental’s bottom line.

Occidental’s share-price ascent happened at the same time that the West Texas Intermediate (WTI) oil price rose from $68 to the low $90s. Natural gas, which is part of Occidental Petroleum’s core business, also increased in price.

Plus, early 2022 has been a time of ultra-cold weather and geopolitical eruptions. If these events persist, OXY stockholders could enjoy strong returns for a while.

Improving Financials

Maybe the oil and natural gas prices will continue to rise, or maybe they won’t. Therefore, investors must consider Occidental Petroleum’s performance and not just the commodities associated with the company.

Overall, Occidental Petroleum’s fiscal picture appears to be improving. For example, the company’s oil and gas pre-tax income on continuing operations totaled $2.1 billion during 2021’s fourth quarter. That’s substantially better than the $1.5 billion from the third quarter of 2021.

We should also consider Occidental’s capital position. At the end of 2021, the company had $2.764 billion worth of cash and cash equivalents. That’s definitely an improvement over the $2.008 billion that Occidental Petroleum had at the end of 2020.

Perhaps most encouragingly, Occidental reported diluted earnings per share (EPS) of $1.37 in 2021’s fourth quarter. That’s a major turnaround from the EPS loss of $1.41 recorded in the year-earlier quarter.

The Takeaway on OXY Stock

Oil and natural gas have gotten more expensive, and that has provided U.S. energy businesses like Occidental Petroleum a strong tailwind.

As a result, Occidental Petroleum’s investors, if they happened to have good timing, were fortunate because energy prices spiked in early 2022.

Luck isn’t a real investing strategy, though, and a continued rally in OXY stock may have to depend on Occidental Petroleum’s financial performance.

The recent fiscal stats look good, so Occidental Petroleum may be worth a small investment. Be sure to watch closely for future developments, though, as energy stocks can be volatile.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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