We recently compiled a list of the 7 Worst Beaten Down Stocks to Invest In. In this article, we are going to take a look at where Occidental Petroleum Corporation (NYSE:OXY) stands against the other the Carl Icahn Stock Portfolio.
The US stock market remains resilient, with the upward momentum intact at the start of the year’s final quarter. The rally to record highs has come against the backdrop of investors betting on themes like artificial intelligence and interest rate cuts on the back of impressive earnings results.
Nevertheless, the recent market boom has raised concerns regarding possible market overvaluation. The market has seen substantial gains, with the S&P 500 up by more than 20% and flirting with record highs. Overvaluation bells are increasingly ringing, given that the Bull Run persisted despite interest rates at record highs.
READ ALSO: 8 Best Warren Buffett Stocks to Buy According to Analysts and 8 Best Value Stocks to Invest In According To Warren Buffett.
The US Federal Reserve cutting interest rates by 50 basis points has since acted as the latest catalyst sustaining the upward trajectory in the market. The spike results from several things, such as rising investor confidence and optimism regarding the economy’s future as the Fed moves to bring interest rates down.
The Federal Reserve’s move to reduce interest rates by half a percentage point in September had a significant effect on the market. The move, driven by worries about the condition of the job market and slowing manufacturing, also raised serious doubts about the health of the US economy. Although some experts think a reduction of half a percentage point is too extreme, others believe it could be the much-needed boost for some of the worst beaten-down stocks to invest in.
Given that the market always tends to rise with a perfect record of 7 out of the 7 times such cuts have occurred, it underscores why investors should be bullish about some of the worst-beaten stocks to invest in. According to Vance Howard of Howard Capital Management, there is an 83% chance of upward movement as the Fed continues to trim interest rates.
Some of the sectors Vance Howard believes are well poised to benefit from the low interest rate environment include real estate and utilities under pressure before the Fed cut. Regarding particular industries to watch, Howard pointed out that financials would probably get stronger after rate cuts. He clarified that although financial stocks usually bounce back and keep rising following a rate cut, they may initially decline. He also advised sticking with technology stock investments.
While a lower interest rate environment could be a boon for some beaten-down stocks, investors should be extremely cautious given the prevailing economic conditions. It’s essential to look at the overall market movements and possible dangers.
Looking forward to the final three months of the year, veteran investor and the CEO of Wise Private Singapore, Kevin Tang, has warned about the potential impact of multiple uncertainties on the horizon. The forthcoming U.S. elections, increasing geopolitical tensions, and worries about an economic downturn are headwinds investors believe could weigh heavily on the market, even on the interest rate cuts that provide support.
Moreover, the forthcoming US elections are making analysts and economists jittery as the market becomes more unstable, given the two candidates’ economic policies. Tom Lee, the managing partner and chief research officer at Fundstrat Global Advisors, recently shared his views on CNBC, suggesting that investing in small-cap stocks and equities is preferable to bonds for their higher growth potential, provided the election uncertainty continues.
Meanwhile, analysts at Morgan Stanley believe that Chinese stocks could experience a more sustained rally following the recent wave of stimulus measures. They anticipate a rally of at least 10% in the near future and possibly even more. If there is further clarity on earnings improvements, the stocks could rally even further, with valuations reaching levels last seen during the economy’s reopening from November 2022 to March 2023.
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Our Methodology
To make our list of the best beaten-down stocks, we first made a list of all stocks that have set a new 52-week low and have a market capitalization of more than $300 million. Then, we also considered their year-to-date share price performance. Finally, this list of beaten-down stocks was ranked in descending order of the number of hedge funds that had bought the shares in Q2 2024, and the least popular stocks according to hedge funds were chosen.
Why are we interested in the stocks that hedge funds pile into? 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)
Current share price: $51.54
52 Week Range: $49.75 – $71.19
Year to date Gain as of October 1: -14.88%
Number of Hedge Fund Holders: 62
Occidental Petroleum Corporation (NYSE:OXY) is a heavyweight energy company that has acquired exploration and is developing oil and gas properties. It is one of the worst beaten-down stocks to invest in, and it has taken a significant hit on oil prices, tumbling amid its premier position in the Permian basin, which acts as a source of cheap oil.
It is one of the stocks cherished by legendary investor Warren Buffett owing to its track record in generating solid results and free cash flow regardless of developments in the energy sector. Consequently, the company has consistently rewarded investors with dividends and buybacks as part of its commitment to returning value.
Occidental Petroleum Corporation (NYSE:OXY) holds approximately 2.8 million net acres of land in the Permian Basin, making it one of the major producers in the region. Its acquisition of CrownRock for $12 billion strengthens its position in the region and access to cheap oil.
Following the acquisition, management projects that its annualized cash flow could rise by as much as $260 million for every $1 increase in crude oil prices per barrel. This implies that an increase in oil prices of $4 per barrel could generate over $1 billion in additional cash flow, which is an amazing accomplishment given that its free cash flow over the previous 12 months was only $6 billion.
Additionally, the acquisition strengthened the company’s ability to produce oil at a breakeven of below $40 a barrel. Consequently, with oil prices at about $70 a barrel, Occidental Petroleum Corporation (NYSE:OXY) is well-positioned to remain profitable and generate free cash flow to return to shareholders.
Additionally, Occidental Petroleum boasts a profitable chemical and midstream business that generates free cash flow regardless of the prevailing market condition. While the stock has been under pressure for the better part of the year, it remains an attractive prospect at a discounted valuation with a price-to-earnings multiple of 11. The company continues to distribute a healthy dividend that yields about 1.71%.
By the end of Q2 2024, the number of hedge funds with stakes in Occidental Petroleum Corporation (NYSE:OXY) increased to 62, up from 61 in the previous quarter. The combined value of these stakes surpassed $18.52 billion, reflecting a growing interest and confidence in the company’s performance among hedge fund investors.
Overall OXY ranks 7th on our list of 7 Worst Beaten Down Stocks to Invest In. While we acknowledge the potential of OXY as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than OXY, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
