Back to top

Image: Bigstock

Time to Buy Occidental ETFs After Buffett's Bullishness?

Read MoreHide Full Article

Warren Buffett has been showing strong bullishness over the integrated oil and gas company Occidental Petroleum (OXY - Free Report) . He has been buying shares of the energy company since the beginning of the year and currently has a stake in Occidental Petroleum at 18.7%. That marks an investment worth about $11 billion in the oil exploration company especially after the sharp spike in oil prices. Occidental shares are up nearly 110% this year as oil prices have rallied.

Oil Price Has a Purely Upbeat Outlook in 2022

U.S producers expect to keep oil production flat this year as output cannot be ramped up instantly amid soaring crude prices, said Oxy CEO Vicki Hollub, as quoted on CNBC. Aging wells, labor shortages and higher raw materials prices because of supply chain issues have been posing threats. In the peak of the pandemic, most oil companies went for capex cuts due to lackluster demand.

Now, the sudden jump in demand thanks to the better COVID-19 management and geopolitical crisis in East Europe and Middle East may not enable companies to take the advantage fully by increasing production very fast. But yes, oil and gas explorers can definitely benefit from the rising crude prices.

Occidental Has a Bullish Outlook

OXY has a Zacks Rank #3 (Hold) with upbeat industry and sector ranks. The stock has an upbeat VGM (Value-Growth-Momentum) score of A.

What Do Indicators Say About Occidental’ Valuations?

Going by valuation metrics, P/E (ttm) of OXY is 12.7 times versus the industry-average of 7.5 times. Forward P/E of OXY is 5.9 times versus the industry score of 4.5 times. Though these measures point to the higher valuation of Occidental than the industry, a higher P/E is always not a sign of worry. It shows investors’ confidence in a particular stock among the bunch.

Investors should note that return-on-equity of Occidental is 47.3%, higher than industry average of 19.9%. The estimated 3-5-year EPS growth of Occidental is now 32.3% versus 13.9% of the industry measure.

ETFs to Tap

To tap the optimism associated with Occidental Petroleum, investors can play Occidental-heavy ETFs as the basket approach reduces company-specific risks.

First Trust Nasdaq Oil & Gas ETF (FTXN - Free Report) – OXY has 9.05% Weight

John Hancock Multifactor Energy ETF (JHME) – OXY has 6.94% Weight

Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) –OXY has 5.67% Weight

Invesco S&P 500® Equal Weight Energy ETF (RYE - Free Report) –OXY has 5.55% Weight

Energy Select Sector SPDR Fund (XLE - Free Report) – OXY has 4.56% Weight