Cramer vs Buffett: Occidental Petroleum’s Value Debate

The investment community finds itself at a crossroads regarding Occidental Petroleum (NYSE:OXY), with Mad Money host Jim Cramer and Berkshire Hathaway’s Warren Buffett taking opposing positions. During his Lightning Round segment, Cramer told viewers they ‘don’t want to be in’ Occidental, describing the energy company as ‘not even a good one.’ This bearish assessment stands in stark contrast to Berkshire Hathaway’s (NYSE:BRK-B) continued position in the stock, which has declined since the conglomerate initiated its position.

The fundamental question facing investors is whether to follow Cramer’s caution or Buffett’s apparent conviction. While Cramer has not been bullish on oil stocks generally, his specific criticism of Occidental raises questions about whether the stock represents genuine value or a value trap. Meanwhile, Berkshire Hathaway’s decision to maintain its position suggests Buffett sees long-term potential despite recent price weakness.

Recent developments surrounding Berkshire Hathaway’s $9.7 billion purchase of OxyChem assets have intensified the debate about Occidental’s future. The transaction, which ultimately amounted to approximately $300 million less than the originally anticipated $10 billion, has generated mixed reactions from market participants. While some view the asset sale as a necessary step to strengthen Occidental’s financial position, others question whether the company is selling valuable assets at an inopportune time.

The market’s reaction to the OxyChem sale has been notably positive, with Occidental shares rising more than 24% since their year-to-date low in April. This represents Berkshire Hathaway’s most significant acquisition splash in years, suggesting Buffett’s team sees substantial value in the chemical assets. For Occidental shareholders, the transaction represents a pivotal moment that could either unlock value or signal deeper operational challenges.

Bank of Nova Scotia analyst Samantha Hoh has emerged as a prominent bull on Occidental Petroleum, upgrading the stock and raising her price target by $7.00 to $55.00 per share. Hoh’s optimistic assessment centers on the OxyChem sale’s potential to help Occidental chip away at its substantial $23.3 billion debt load. This debt reduction, she argues, will create greater financial flexibility for share repurchases and dividend growth.

The analyst’s upgrade reflects confidence that Occidental management can leverage the asset sale proceeds to strengthen the company’s balance sheet while returning value to shareholders. With the stock trading at depressed levels, Hoh believes share buybacks represent an efficient method of unlocking value. The potential for continued dividend increases also provides income-oriented investors with compensation during what may be an extended period of sector volatility.

From a valuation perspective, Occidental presents a compelling case for value investors. Trading at 16.1 times forward price-to-earnings, the stock appears significantly discounted compared to historical levels and broader market multiples. The current price represents a decline of approximately 40% from five-year highs, suggesting substantial potential upside if the company can execute its turnaround strategy.

Investors must weigh several factors when considering Occidental. The 2.2% dividend yield provides some compensation during what could be an extended period of energy sector volatility. However, the stock’s performance remains heavily dependent on oil prices, with potential pressure mounting if prices sink below $60 per barrel. The key question for buyers at current levels is whether management can unlock sufficient operating efficiencies following the OxyChem sale to justify the investment.

The debate between following Cramer’s caution or Buffett’s conviction ultimately comes down to investment horizon and risk tolerance. While Cramer’s concerns about near-term performance may be valid, Buffett’s continued involvement suggests confidence in Occidental’s long-term prospects. For investors willing to endure potential volatility, Occidental represents a classic value proposition in the energy sector, though patience may be required before shares begin to show meaningful returns.