Despite his investment expertise, Warren Buffett’s top energy stock pick in the Berkshire Hathaway (NYSE: BRK.A) portfolio continues to struggle.
Often regarded as Buffett’s favorite energy investment, Occidental Petroleum has seen its stock price decline amid his continued confidence in the company.
The Oracle of Omaha’s latest acquisition of Occidental shares came in February 2025, when Berkshire Hathaway purchased 763,017 shares of the Houston-based energy firm for $35.7 million, bringing its total stake to 28.2%.
Picks for you
As of the March 21 trading session, OXY closed at $47.94, dipping 0.04% for the day. Year-to-date, the stock remains down more than 3%, and at its current valuation, OXY is trading approximately 21% below Buffett’s initial entry price of $60.
Notably, Occidental is lagging behind sector peers, having failed to deliver the returns many expected, especially given Buffett’s continued confidence in the company.
While the legendary investor’s involvement is a source of optimism based on his value investing philosophy, Occidental’s persistent struggles could lead to questions about whether this is a misstep on Buffett’s part or if patience is required.
Is OXY still worth buying?
To answer this question, examining the underlying fundamentals likely to affect OXY’s future performance is key. Indeed, the stock has several catalysts likely to support a bullish case, especially from a financial perspective.
In this case, the company hit its $4.5 billion debt repayment target seven months ahead of schedule in Q4 2024, following its $12 billion acquisition of CrownRock in 2023.
Occidental posted $3.1 billion in cash flow for the same quarter and $1.4 billion in free cash flow. Additionally, the company divested upstream assets for $1.2 billion, strengthening its balance sheet.
The firm also closed in 2024 with strong production and reserve growth. In Q4, Occidental produced 1.46 million barrels of oil equivalent per day, exceeding guidance, driven by strong output in the Permian Basin and Rockies.
Total proved reserves rose to 4.6 billion BOE from 4 billion the previous year, largely due to the CrownRock acquisition and discoveries. Occidental’s 2024 reserves replacement rate reached 230%, ensuring more reserves were added than produced. With solid production and a growing resource base, the company is well-positioned for 2025.
Given its dividend appeal, OXY presents an ideal long-term investment opportunity for income-focused investors. Specifically, during the last earnings report, the energy giant announced a 9% increase in its quarterly dividend to $0.24 per share, payable on April 15, 2025, to stockholders of record as of March 10, 2025.
On the other hand, the company’s investment in direct-air-capture (DAC) technology strengthens its position in carbon reduction, with Microsoft’s deal to buy 500,000 metric tons of removal credits highlighting its significance.
OXY stock risks
Meanwhile, the stock is not without risks. For instance, Occidental could be affected by oil price volatility, as it has no active commodity hedges to cushion against market downturns. A sharp decline in crude prices could impact performance.
The energy firm’s Q1 2025 production forecast of 1.39 million barrels of oil equivalent per day fell short of analyst expectations of 1.43 million, raising concerns about potential operational challenges.
At the same time, Raymond James downgraded Occidental Petroleum from ‘Strong Buy’ to ‘Outperform’ and lowered its price target to $64, citing weaker oil prices and recent stock outperformance. Despite beating Q4 earnings estimates by 18%, the firm took a more cautious stance.
In general, Wall Street analysts’ consensus on TipRanks foresees a 21% upside for OXY stock over the next 12 months, projecting an average price of $58 and a ‘Hold’ rating.
In summary, while Occidental Petroleum has faced short-term struggles, its fundamentals suggest the stock has a solid chance of rallying. Despite recent price weakness and analyst downgrades, Buffett’s continued confidence in the stock highlights its potential. Given these factors, investors may want to exercise patience, as the stock could be primed for a rebound in 2025.
Featured image via Shutterstock
