Best S&P 500 stock in 2022 held by Buffett
Shares of oil and gas producer Occidental Petroleum trade under the ticker symbol OXY. They have gained about 120% since the beginning of the year. That’s the strongest growth among stocks in the S&P 500 Index. Consider what to expect from them next.
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Warren Buffett’s interest in the oil producer’s paper was supportive. His investment company Berkshire Hathaway was actively building up its stake in Occidental Petroleum in 2022, and it reached 21.4% at the end of the third quarter. In August, the Federal Energy Regulatory Commission (FERC) allowed Buffett’s company to acquire up to 50% of Occidental Petroleum.
The company is actively reducing its debt load, built up during a period of low oil prices during the pandemic. Over the current year, debt has decreased by $9.6 billion, or 34%. By the end of the third quarter, it was about $20.5 bn. The company’s goal is to reduce its debt to $15 bn in 3 years.
Occidental Petroleum has reported strong results this year:
- Q1 revenue up 58% YoY, company managed to ride out losses; earnings jumped 1510% YoY
- Strong financial performance continued in Q2, with revenues up 79% y/y and profits jumping 242% y/y
- Q3 revenue up 40% y/y and earnings up 180% y/y
The driver for Occidental Petroleum stock growth was the rising price of hydrocarbons. Also, consumer interest in U.S. oil companies increased due to the imposition of sanctions restricting cooperation with oil and gas suppliers from Russia.
The oil and gas sector were the leader of S&P 500 index by results for the year; eight of its representatives were included in the top 10 by growth of quotations. In addition to Occidental Petroleum, the top ten included:
- Hess Corp. — +90%,
- Marathon Petroleum — +80%,
- Schlumberger — +78%,
- Exxon Mobil — +77%,
- APA Corp. — +74%,
- Marathon Oil — +69%,
- Halliburton Co. — + 69%.
Over the year, Occidental Petroleum gained 120% while the S&P 500 broad market index lost about 18%.
What will happen to the stock
OXY stock is supported by the distribution of earnings to shareholders. Starting in early 2022, the quarterly dividend began paying $0.13 per paper, versus $0.01 in 2021, and the dividend yield has risen to 0.8% per year.
The company also has a buyback program: the balance of the buyback program for the 4th quarter is $0.56 billion (0.8% of the current capitalization) out of its total amount of $3 billion. With high oil prices, the size of the buyback will be increased.
Technical picture. The daily chart shows that the stock has been moving in an up-trend during the year. In spring they entered an upward channel and now they are pushing away from its lower boundary and aiming to reach the resistance level of $76.3 (+19% from the current values).
Dynamic support is the 200-period average. The RSI indicator, having reset oversold, turns up above the zone of lower extremes. MACD lines have crossed, giving a buy signal.