Warren Buffett Is Betting Big On Occidental Petroleum, But Analyst Sees 'Better Options Elsewhere'

Zinger Key Points
  • Warren Buffett was granted permission to take a 50% ownership stake in Occidental Petroleum.
  • One analyst said Monday that there are better ways to invest in the oil industry than Occidental.

Shares of Occidental Petroleum Corporation OXY jumped on Friday on news Berkshire Hathaway Inc (NYSE: BRK-A) (NYSE: BRK-B) and billionaire CEO Warren Buffett were granted permission to take an up to 50% ownership stake in Occidental. Buffett's seal of approval is good news for Occidental investors, but one analyst said Monday that there are better ways to invest in the oil industry than Occidental.

The Analyst: Bank of America analyst Doug Leggate reiterated his Neutral rating for Occidental, but raised his price target from $77 to $80.

Related Link: Should Occidental Petroleum Be Renamed Occidental Hathaway? Warren Buffett Gets Approval To Purchase Half The Company's Stock

The Thesis: Leggate said it's not even clear at this point whether or not Buffett will pursue a 50% ownership stake in Occidental, given it is already one of Berkshire's largest investments.

Leggate said Occidental has one of the most capital efficient portfolios in the oil industry, but nothing has changed about the company's value proposition since Buffett has gotten involved.

"Aside from perceptions of some deific impact on OXY’s risk profile that translates to a lower cost of capital we instead see recent outperformance highlighting a relative dislocation in value vs other similarly positioned stocks that we see as better options for any agreement investors may have with BRK’s l/term oil outlook," Leggate said.

Related Link: 7 Warren Buffett Dividend Stocks With The Highest Yields

For investors who take Buffett's bullish view on Occidental to heart, Leggate said there's better value to be had in oil stocks like Exxon Mobil Corp XOM, ConocoPhillips COP, Hess Corp. HES and EOG Resources Inc EOG.

In the long-term, Leggate projects Brent oil prices will drift back down into a range of between $70 and $90 per barrel from their current price of around $93.40/bbl.

Benzinga's Take: Investors and analysts may disagree on which oil stocks are the best buys right now, but Buffett's involvement with Occidental and implied vote of confidence in the oil industry is good news for all oil investors. Buffett fans may need to wait another three months for Berkshire's third-quarter 13F filing to see how aggressive Buffett will be in adding to his Occidental stake, or if he will even be buying at all.

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Posted In: Analyst ColorLong IdeasPrice TargetAnalyst RatingsTrading IdeasBank of AmericaDoug Leggate