What makes Occidental Petroleum so unique to warrant a 28% stake by Berkshire?

Occidental Petroleum Corporation (NYSE:OXY) has been on the news lately. This was after Berkshire Hathaway Inc. (NYSE:BRK.A) increased its holding to about 28% of OXY. Over only three days, Berkshire Hathaway acquired $312.09 million worth of OXY stock at $60. The acquisition comes at a time when oil and gas prices have been declining. Investors want to know what Berkshire Hathaway sees in OXY.

Recent disclosures indicate that OXY is in a deal to acquire CrownRock L.P. for $12 billion. That deal was announced only two weeks ago. From projections, the deal could boost OXY’s revenues by more than $1 billion per year. However, acquisition is certainly not the key factor driving Berkshire’s interest in OXY. Berkshire Hathaway started accumulating the stock in 2022, signalling more fundamental value.

OXY is A-rated as a value stock. The prior year’s EPS was at only 9.35, while the PEG rate was recorded at 0.67. OXY is certainly undervalued. The discount on the stock is one of the reasons why notable investors are accumulating the stock. OXY is also making big moves to create shareholder value.

The pandemic disrupted dividend yields for many companies, including OXY. However, as many of the companies returned to the pre-pandemic dividend yields, OXY didn’t. OXY’s pre-pandemic dividend policy was characterised by dividend yields above 4%.

The post-pandemic period has a dividend yield of 1.2%. Earnings are reinvested in deals such as the CrownRock L.P. $12 billion acquisition. Berkshire Hathaway’s position in OXY recognises OXY’s strategic investment moves and the discounted price.

Berkshire ramped up OXY as it emerged from the oversold signal

OXY is emerging from the oversold region, as shown by the RSI indicator. The 10-day average just crossed above the 20-day average. The expectation, therefore, is that a price rally can be anticipated. It is also clear that Berkshire Hathaway’s market moves were also well-timed to lock in value.

Summary

The purchase of a 28% stake in OXY by Berkshire Hathaway is a signal that OXY is an attractive value stock. OXY is also making big strategic moves like the acquisition of CrownRock L.P. It is also clear that OXY is keen on reinvestment of earnings in place of dividend yield.

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