Why is everyone talking about oil major Occidental Petroleum (OXY -1.24%)? It all comes down to one legendary investor's stamp of approval. Berkshire Hathaway CEO Warren Buffett's stake in Occidental Petroleum speaks volumes and has financial traders who wouldn't normally invest in the oil patch suddenly taking an interest in this oil and gas giant.
You don't have to buy Occidental Petroleum stock just because Berkshire did (though an argument could be made for doing so). Rather, self-directed investors can consider Occidental's qualities that might make it attractive to Buffett, and to value and yield seekers generally.
Occidental checks some Buffett boxes
Combing through Form 13-F filings won't tell you why Berkshire chose to buy shares of Occidental Petroleum. Still, it's possible to deduce what the Oracle of Omaha might like about the company.
In case you didn't get the memo -- or more precisely, Berkshire's annual shareholder letter -- it's crystal clear that Buffett likes businesses that return value to their shareholders. Surely, it's not mere happenstance that Buffett cited two consistent dividend growers, Coca-Cola and American Express, as prime examples of winning "Secret Sauce" ingredients in his portfolio.
Granted, Occidental Petroleum isn't a decades-long dividend grower like Coca-Cola and American Express have been. Occidental did, however, at least make a token gesture by increasing its annual dividend 38.5%, from $0.52 to $0.72.
Buffett is also known as a value investor, and a few classical metrics seem to put Occidental Petroleum stock in the buy zone. Over the trailing 12 months, Occidental has a price-to-earnings ratio of 4.9 (which compares favorably to Exxon Mobil's 8.3 and Chevron's 8.9), a price-to-sales ratio of 1.94 (I look for 3 or less as a general rule of thumb), and a price-to-book ratio of 2.91 (2 or less would be ideal, but anything under 5 is usually acceptable).
Buybacks and earnings growth seal the deal
While Buffett touched upon other ideas in his most recent shareholder letter, the real headline grabber was his mini-rant against "silver-tongued" critics of corporate share repurchases. Buyback-centered debates aside, there's no doubt that Occidental Petroleum checked Buffett's buyback box as the company repurchased $562 million worth of its own shares in 2022, including 47.7 million shares in Q4 alone, to complete a $3 billion share repurchase program.
Finally, if everybody's going to talk about Occidental Petroleum, then that's not a bad thing as the company is demonstrating earnings growth. Occidental's Q4 2022 adjusted per-share earnings of $1.61 fell short of Wall Street's consensus estimate of $1.81, but nonetheless marked an improvement over the year-earlier quarter's $1.48. Moreover, Occidental Petroleum stayed profitable throughout all four quarters of 2022 -- something that couldn't be claimed in 2021. It's a notable achievement in context as 2022 was a rough-and-tumble year for the economy generally. So, whether you're a follower of Berkshire and Buffett's trades or not, Occidental Petroleum stock looks like a good long-term option, especially if you're in the market for a fig energy standby that unapologetically respects its shareholders.
