Given the run up in oil prices recently, the energy sector is looking like a good place to deploy new money. One stock I am looking to add on the next market dip is Occidental Petroleum (NYSE:OXY).
“Occidental Petroleum Corporation, together with its subsidiaries, operates as an oil and gas exploration and production company primarily in the United States. The company operates in three segments: Oil and Gas; Chemical; and Midstream, Marketing, and Other.” (Business description from Yahoo Finance)
7 reasons Occidental Petroleum is a solid value at $91 a share:
- The company is taking advantage of new technologies to expand domestic production. In the last quarter, OXY had its all time record U.S. production.
- OXY has a strong A rated balance sheet, yields 2% and has grown its dividend by 17% annually over the last five years.
- It is a pure play oil and chemical stock, as it does not have refinery assets like some of the other oil majors. This takes substantial volatility out of its earnings stream.
- The company is doing a solid job in replacing and growing production. Credit Suisse predicts it will grow production at a 6% annual rate through 2015.
- Occidental has beaten consensus earnings for five straight quarters. Consensus quarterly earnings estimates for this quarter have been moving up over the last few days as well.
- With a forward PE of under 11 and selling at less than 7 times operating cash flow, OXY is undervalued by the market.
- The stock is some 30% under consensus analysts’ price target of $118. Credit Suisse has an “outperform” rating and $135 price target on OXY.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OXY over the next 72 hours.