We recently published a list of the 8 Most Profitable Oil Stocks To Invest In. In this article, we are going to take a look at why Occidental Petroleum Corporation (NYSE:OXY) is one of the best oil stocks to invest in.
OPEC Anticipated to Hold Oil Supply
One of the leading oil-producing regions, OPEC countries and its allies are expected to extend their latest round of oil production cuts for the first quarter of 2025, according to analysts. OPEC+ controls nearly half of the world’s oil production and supply. The oil governing body was planning to initiate unwinding output cuts through 2025. However, the decline in global demand and output outside OPEC could impact oil prices.
“Market participants are closely watching to see if OPEC+ will focus on bolstering prices by extending production cuts, or opt to defend its share of the global crude oil market by easing those cuts,” said Satoru Yoshida, commodity analyst with Rakuten Securities. Yoshida added that the OPEC decision to cut oil supply would potentially have a short-term impact. Still, the market is anticipated to rise by the year-end following the takeover of the Trump administration.
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The OPEC+ countries are holding around 5.86 million barrels per day of output, which accounts for almost 5.7% of global demand. To support the oil market, the oil supply has been managed in a series of steps agreed since 2022. The OPEC members had planned an output increase of 180,000 barrels per day for January 2025. The non-OPEC+ countries are expected to boost the oil supply by almost 1.5 million barrels per day in 2025. Nevertheless, the global oil benchmark Brent Crude has mostly traded between $70 to $80 per barrel in 2024, while it hit a 2024 low below $69 in September.
The global oil market is impacted by several factors including, geopolitical risks, production levels, and OPEC’s strategies. The ceasefire between Israel and Hezbollah could affect prices, but the new war in Syria could potentially be a new issue for oil producers. However, oil prices remain lower than expected based on inventory fundamentals. In the long term, oil price hikes above $100 are less likely to occur due to the impact of U.S. shale production over the past decade.
With that, let’s take a look at where Occidental Petroleum Corporation (NYSE:OXY) ranks among the most profitable oil stocks to invest in.
An oil worker wearing a hard hat and a safety vest checking an industrial oil pump.
Our Methodology
To compile our list of the 8 most profitable oil stocks to invest in, we scanned oil stocks through Finviz Screener using two indicators. We shortlisted the stocks with a minimum net income of $2.5 billion or more in the trailing twelve months (TTM) and a 5-year net income compound annual growth rate (CAGR) of over 10%. From that list, we narrowed our choices to the 8 stocks widely held by hedge funds, as of Q3 2024. As of the third quarter, the list is ranked in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Funds Holders: 71
5-Year Net Income CAGR: 30.22%
TTM Net Income: $3.68 Billion
Occidental Petroleum Corporation (NYSE:OXY) is a global energy company with assets primarily in the United States, the Middle East, and North Africa. The company is engaged in the exploration, production, and marketing of crude oil. Occidental Petroleum Corporation has three segments including, oil and gas, chemical and midstream, and marketing.
Following the acquisition of CrownRock, Occidental Petroleum Corporation (NYSE:OXY) has done well to repay its debt, having paid $4 billion in debt by Q3 2024. The company announced to repay around $4.5 billion in debt in 2024, which has been mostly achieved, driven by strong cash flows.
The target of short-term debt reduction means that the company can focus on generating more cash flows and having the opportunity to invest in new projects in 2025. Occidental Petroleum Corporation’s next target is to invest in chemicals (OxyChem) and low-carbon venture businesses, both of which have solid growth potential. During Q3, the company’s OxyChem exceeded guidance with pre-tax income of $304 million.
Oil & Gas segment remains the key driver for the company as it continues to grow. In Q3, the segment recorded the highest quarterly U.S. production in the company’s history. Despite the hurricanes that impacted OXY’s operations across the Gulf of Mexico, the company was able to pull off record results. This production outperformance was primarily driven by strong new well performance and higher uptime throughout the Permian Basin. In addition to that, the Gulf of Mexico also remains the top-producing unit of OXY.
Overall, OXY ranks 2nd on our list of the most profitable oil stocks to invest in. While we acknowledge the potential of OXY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than OXY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
