Warren Buffett, the billionaire investor behind Berkshire Hathaway, Inc. (BRK.A), has been aggressively investing in Occidental Petroleum Corporation (OXY) since 2019. Buffett first invested in preferred shares of Occidental back in 2019 when the oil giant needed additional funding to acquire Anadarko Petroleum for a staggering $38 billion. Since then, Buffett has invested in Occidental regularly, bringing Berkshire’s stake in the company to more than $15 billion through ownership of 252.3 million Occidental shares, representing almost 29% of the total outstanding shares of the company. Occidental, with a portfolio weight of 4.1%, is the 6^th largest holding of Berkshire Hathaway today.

Who Is Occidental?

Occidental Petroleum is one of the largest operators in the Permian Basin, America’s most productive oil field which contributes to more than 40% of the annual oil production of the nation. Permian Basin is also home to some of the most cost-efficient oil assets in the world, which allows companies that own assets in this region to produce oil at substantially lower costs, thereby allowing them to enjoy above-average profit margins. As of 2023, Occidental’s production capacity in the Permian Basin was 586,244 barrels of oil equivalent per day, ahead of many oil giants including Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX).

Given that many analysts are warning of a permanent decline in oil prices in the coming years, it makes sense to only gain exposure to low-cost oil producers. Occidental is one, and Buffett’s investment in the company highlights Occidental’s potential to thrive even amid challenging industry conditions.

What The Industry Thinks

Last month, Morgan Stanley equity strategist Mike Wilson listed Occidental as one of his best trade ideas in the cyclicals sector given the company’s high-quality business model. The analyst expects the S&P 500 Index to move higher in the next 12 months, enabling Occidental’s share price to ride alongside. Truist Securities analyst Neal Dingmann, however, downgraded Occidental last month and assigned a price target of $69 as he sees lackluster shareholder returns in the foreseeable future as the company will use the bulk of its projected free cash flows this year to reduce its debt burden. That said, the analyst’s price target still implies an upside of 17% from the current market price. Based on the ratings of 14 Wall Street analysts, the average Occidental Petroleum price target is $72, which implies an upside potential of 21%.

Neither Sean Kelland nor Stocks.News have positions in this stock.