Sweater weather is officially here, and as frosty temperatures greet us in the mornings these days, many investors are looking to cozy up to some stocks that are hiding in the bargain bin. With the S&P 500 soaring more than 22% this year, it may seem difficult finding quality stocks that have underperformed in 2024 yet deserve prominent places on investors' buy lists.
But that's exactly what Occidental Petroleum (OXY 0.75%) and Whirlpool (WHR -0.74%) stocks, which have dropped 12% and 13%, respectively, represent. Let's see why two Fool.com contributors think that better days lie ahead for these two beaten-down stocks.
A new acquisition makes Occidental Petroleum
Scott Levine (Occidental Petroleum): Despite a positive performance through the first half of the year, Occidental Petroleum headed south after the company reported second-quarter 2024 financial results in August.
It's important to note that the exploration and production company didn't report anything disastrous. In fact, Occidental Petroleum beat on the top and bottom lines, reporting revenue of $6.88 billion and adjusted earnings per share (EPS) of $1.03. Analysts expected the company to report sales and EPS of $6.8 billion and $0.77, respectively.
The stock's slide seems to stem from the variety of analysts who reduced their price targets on Occidental Petroleum stock after projecting a decline in energy prices. Smart investors know, however, that enduring rises and falls in oil and gas prices are table stakes for investing in energy companies like Occidental Petroleum, meaning the analysts' short-term price targets shouldn't dissuade those with long-term investing horizons.
Investors who can endure the current negativity surrounding Occidental Petroleum may very well be rewarded in the long term for their patience. The company projects a strong finish to 2024, thanks, in large part, to its $12 billion acquisition of CrownRock. Adding CrownRock's assets to its portfolio, Occidental Petroleum secures a more expansive presence in the Permian Basin that is expected to immediately contribute free cash flow.
In fact, management estimates that many of the CrownRock assets will be profitable as long as West Texas Intermediate, the U.S. oil benchmark, stays above $40 per barrel. This will contribute nicely to the company's operations, which are already generating strong free cash flow. Occidental Petroleum, for example, has a free cash flow yield that exceeds that of its upstream peers, Diamondback Energy and Hess Corporation.
OXY Free Cash Flow Yield data by YCharts.
With shares hovering just above their 52-week low, now seems like a great time to click the buy button on this beaten-down energy stock.
Whirlpool has risks, but not just on the downside
Lee Samaha (Whirlpool): It's been a challenging year for Whirlpool. Unfortunately, interest rates remained higher for longer than many, including Whirlpool's management, expected. That's impacted the housing market and, in turn, the North American major domestic appliance (MDA) market.
The negative impact goes beyond the revenue line, because the housing slowdown has shifted the market toward replacement purchases rather than discretionary purchases that might be made as part of fitted kitchens or bathrooms. Given that the latter tends to be a higher margin than the former, there's a negative impact on margins, too.
It added to pressure Whirlpool's earnings, and management has already cut its full-year earnings and cash flow guidance back in the summer. Moreover, potential buyers should be aware that the pressure is unlikely to have eased much over the summer, so forecasting third-quarter earnings is extremely difficult.
That said, there's a good case for buying the stock built on the idea that a lower-interest rate environment will inevitably help the housing market and MDA discretionary spending. Moreover, Whirlpool grew profits in all its other segments outside the MDA North America segment in the second quarter. In addition, following a disappointing promotional campaign, the company raised prices, while management expects to take at least $300 million out of costs this year.
Given the stock's low valuation (less than 9 times Wall Street analyst earnings expectations for 2024) and its 6.8% dividend yield, it's reasonable to assume the market thinks Whirlpool won't hit its numbers. However, the market isn't always right, and the stock will likely appreciate if it's not.
Should you buy these stocks now?
For those looking to ramp up their passive income streams, Whirlpool is a great option now, considering its high yield and the fact that its stock trading at an attractive valuation. Shares are priced at 5.6 times operating cash flow, a discount to their five-year average cash flow multiple of 6.7.
On the other hand, investors interested in playing in the oil patch would be well suited to consider Occidental Petroleum, a leading upstream energy stock that has recently gained an even more prominent position in the Berkshire Hathaway portfolio.
