Over the past few weeks, Warren Buffett has been buying shares of Occidental Petroleum Co. (NYSE: OXY) to bring his net stake up to 29%, which is not Buffett's usual behavior. When the Oracle of Omaha invests this heavily—and this quickly—in a stock, there must be a good enough reason to justify these quick and aggressive decisions.
While there is enough evidence to back up a bullish rotation in the energy sector, what investors need to know today is that they must not let fear of missing out (FOMO) drive their decisions today, as tailgating Buffett's Occidental stock purchase could be a "too late" to follow the moment. Dissecting his reasoning for picking Occidental and not its peers, investors can land on three similar companies to ride today's oil wave.
Starting in this leading pack is ConocoPhillips (NYSE: COP), sharing some characteristics with Occidental, enough to also make it a potential Buffett buy for retail investors. Next on the list is Marathon Oil Co. (NYSE: MRO), with a similar tier of factors to back it as a potential watchlist addition, and last but not least, there’s Shell PLC (NYSE: SHEL). Here’s what they all have in common with Occidental.
Why Oil Stocks Could Dominate the Market in 2024 and 2025
Historically speaking, the second half of the year is always a good run for oil. But today, there's more than past data to back up a thesis for the industry. The latest ISM manufacturing PMI trends show that, despite being in a contraction, oil was the only sector that pushed signs of revival.
With a breakout in employment, new orders, and production, the industry looks ready for increased demand and activity in the coming months.
Seeing how the Energy Select Sector SPDR Fund (NYSEARCA: XLE) has underperformed the broader S&P 500 by as much as 12% in the past year, investors can lean on these PMI trends to close this performance gap.
ConocoPhillips Stock Discount Attracts Wall Street Attention
The stock is now trading at 83% of its 52-week high, which may sound like a discount once investors see other valuation metrics, like the one that drove Buffett to buy Occidental stock.
ConocoPhillips stock is valued at roughly 13.8x today, compared to Occidental’s 8.5x valuation on a price-to-free cash flow basis. While not as cheap as Buffett’s find, investors still can tap into future upside in this name.
Wall Street analysts now forecast up to 17% growth in earnings per share (EPS) for ConocoPhillips stock this year, driving price targets higher. Those at Truist saw it fit to boost valuations for ConocoPhillips stock up to $165 a share, daring it to rally by 48.2% from where it trades today.
While Buffett couldn’t come to buy ConocoPhillips stock today, Price T Rowe Associates (the stock’s largest shareholder) bought it during the past quarter. The asset manager boosted its stake in ConocoPhillips stock by 35.8%, bringing its net investment to $4.1 billion today.
Marathon Oil Stock Rattled by Buffett's Oil Move, Short Sellers React
For Marathon Oil, short interest has declined by over 5.6% in the past month. Buffett’s presence in the oil sector may have scared these short sellers away, but even apart from this factor, Marathon Oil has enough merit to command the type of upside it presents today.
Wall Street analysts now forecast 15.5% EPS growth for the company in the next 12 months. Based on these projections, analysts at Scotiabank saw fit to boost Marathon Oil’s valuation up to $45 a share, daring it to rally by roughly 62% from where it trades today.
Based on these factors, the Vanguard Group, Marathon Oil stock’s largest shareholder, decided to boost its position in the stock by 10% over the past quarter. This buying now represents a dollar value of $2.2 billion for Vanguard.
The company’s $15.5 billion market capitalization would value the stock at roughly 7.6x on a price-to-free cash flow basis. This deal is not only cheaper than ConocoPhillips but also a more attractive deal than Buffett was able to pick up.
Shell Stock's Valuation Boosted by Wells Fargo Analysts
Analysts at Wells Fargo led the way on Wall Street to become bullish on Shell stock. Today, they see a price target of $90 a share, representing roughly 28.7% upside from where the stock trades today.
As for Marathon Oil stock, short sellers were scared away by Buffett’s move into the energy sector. Over the past month, short interest for Shell stock plummeted by 5.3%, leaving more room for institutions to pick up these additional shares.
T Rowe Price boosted its position in Shell by 13% in the past quarter, bringing its net investment to $450 million today. According to Shell’s financials, the stock’s $224 billion market capitalization would give investors a price-to-free cash flow multiple of 7.2x, even a better deal than what Buffett found in Occidental stock.