Is Occidental Petroleum a Bargain or a Value Trap Right Now?

Shares of Occidental Petroleum (OXY -0.12%) currently sit about 10% below their 52-week high. Despite that lower price, I think the oil stock is a value trap right now. However, I also believe it’s a bargain long-term.

Here’s how I reconcile those opposing views.

Image source: The Motley Fool.

Why Occidental could be a value trap right now

Brent oil currently trades just below $90 a barrel. While that’s up from $60 a barrel to start the year, it’s below its peak near $120 a barrel.

I think there are further downside risks to oil prices in the near-term. The U.S. military is quietly getting oil out of the Strait of Hormuz, which has kept a lid on oil prices. That key waterway will eventually reopen to greater oil flows. Meanwhile, Persian Gulf countries are moving forward with alternative routes, which should lessen their reliance on the Strait in the future. Additionally, the recent U.S. oil deal with Venezuela will boost that country’s output. I think these and other factors will drive oil prices lower over the coming year, which will likely weigh on Occidental’s stock.

Today’s Change

(-0.12%) $-0.07

Current Price

$59.10

Key Data Points

Market Cap

$59B

Day’s Range

$58.67 – $59.48

52wk Range

$38.80 – $67.45

Volume

81.3K

Avg Vol

Gross Margin

38.08%

Dividend Yield

1.69%

The case for a future bargain

While I think oil prices could drift lower in the near term, I expect they’ll move higher over the longer term. As Shell‘s CEO warned earlier this year, “All the easy oil and gas has been found.” That drives his view that “prices are going to move up…That’s the story of five to 10 years.”

Occidental has put itself in a strong position to capitalize on higher future oil prices. It expects to deliver a $4 billion improvement in annual sustainable cash flow by 2030 compared to 2025’s oil price ($65 a barrel). Driving factors include lower new well costs, growth in higher-margin volumes, continued debt reduction, and the redemption of Berkshire Hathaway‘s preferred equity investment in 2029. Higher oil prices in 2030, as Shell expects, would add to this cash flow growth expectation.

So, while I think there’s more downside potential for Occidental over the next year, I also believe the oil stock is a bargain compared to its earnings growth potential over the next five to 10 years.

Matt DiLallo has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.

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Shin JohnYtv Market News

Share-market news writer and analyst with deep experience covering equities, commodities, forex, and cryptocurrencies for readers in the USA, UK, Canada, and Australia. Ytv Market News delivers timely market updates, practical trading insights, and clear explanations of macro and company-level catalysts that move prices. Combines on-the-ground financial reporting with technical analysis, using concise charts and actionable ideas to help investors and traders make smarter decisions.