Buy-recommended Occidental Petroleum (NYSE:OXY), among the largest independent producers and concentrated 74% on oil by value, offers highly liquid investment participation in long-term oil price at a discount to the commodity markets.
On the modestly levered basis with Oxy’s low debt ratio, Oxy’s stock price at $45 a share is a one third discount to our estimate of net present value of $69. On the unlevered basis of the McDep Ratio of 0.70, the discount is 30%.
Present value is tied to a long-term real oil price of $60 a barrel, while the current futures price for the next six years is also $60 a barrel, coincidentally. While short-term oil price is less than $60, cash flow generation remains strong at the average futures price of $56.56 for 2007, and taking account of latest quarterly results reported on January 25.
Though Oxy stock is out of favor as defined by current price below the 200-day average, we carry a full unlevered weighting of Oxy stock in the illustrative McDep Energy Portfolio, concentrated on real assets that promise a high return providing clean fuel for global growth.
OXY 1-yr chart