Occidental Petroleum Corporation (OXY): Is This Stock a Foolish Investment at These Prices?

A plan of action

Occidental Petroleum Corporation (NYSE:OXY) seems ripe for a sell at these lofty levels. But should you replace this position with another oil stock? Absolutely. In fact, it was no fluke that I compared Occidental to Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) which are among my top picks in the industry.

The RoA and RoI of ExxonMobil trump almost every player in the industry. While Exxon’s 2.80% yield is not that attractive in my opinion, it comes only at the expense of a 23% payout ratio which leaves lots of room for future increases. In fact, Exxon sports a five-year dividend growth rate of 8.33%. Finally, with Exxon being the top natural gas producer in the USA it is poised to capitalize on this burgeoning commodity which the EIA Natural Gas Projections show will only become more expensive.

Chevron has been a favorite of mine for many years now. The reason is simple: quality management. It’s quality management that lead Chevron to deliver the goods more often than any other major player in the industry. This is evident by the five year net profit margin of 9.50%. Compare that to the 4.50% of Exxon and the industry average of 6.30. The five year EPS growth rate is also impressive at 9.27% vs an industry average of -2.96%. Expect this to continue.

Conclusion

Based on valuations and future crude oil price projections, Occidental Petroleum Corporation (NYSE:OXY) looks too expensive. ExxonMobil and Chevron present respectable re-allocations for those investing in the oil industry. Profit-taking and playing it safe is often prudent during times of market uncertainty and high valuations. I recommend that those with a position in Occidental do a bit of profit taking, especially after such a handsome and underserved run to the upside. If you must stay in the oil sector, go with the best of breed.

The article Is This Stock a Foolish Investment at These Prices? originally appeared on Fool.com and is written by James Catlin.

James Catlin has no position in any stocks mentioned. The Motley Fool recommends Chevron. James is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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