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BP, Occidental Petroleum Fall Despite Steady Oil Prices

Oil companies Occidental Petroleum (OXY) and BP (BP) are both suffering today. BP stock is down about 4%, while OXY is down over 5%. One common thread seems to link these two to their mutual losses, and it’s a point that may be entirely overblown.

I’m bullish on both right now. Explosively high gas prices suggest solid returns for some time to come, and the demand destruction that seems to be underway will only go so far as to restrain those prices. At least, that’s likely to be the case in the near term.

For the last 12 months, BP has been riding a wave of price hikes and increased demand quite well. A dip in late June into July corrected, and the stock has been on an overall upward trend ever since.

Occidental, meanwhile, has enjoyed a similar upward trend but without the choppy nature that BP saw. Occidental plateaued through the last six months of 2021 and started a pronounced climb into 2022. Share prices better than tripled in the last year, going from just under $22 in August 2021 to nearly $74 in late May.

News for the companies suggests a common thread, with both companies underperforming competitors in recent days. However, Warren Buffett and Berkshire Hathaway (BRK.B) recently bought in heavily on Occidental Petroleum just weeks ago. BP, meanwhile, saw gains yesterday that lagged the S&P 500’s (SPX) daily gain of 1.46%. BP came in at just 0.52% up and is also lagging the market again today.

Wall Street’s Take

Turning to Wall Street, BP has a Moderate Buy consensus rating. That’s based on three Buys and one Sell assigned in the past three months. The average BP price target of $35.33 implies 18.8% upside potential.

Analyst price targets range from a low of $31 per share to a high of $39 per share.

Meanwhile, Occidental Petroleum also has a Moderate Buy consensus rating. That’s based on eight Buys, seven Holds, and two Sells assigned in the past three months. The average Occidental Petroleum price target of $73.71 implies a 29.4% upside potential.

Analyst price targets range from a low of $52 per share to a high of $90 per share.

BP Suffering in Investor Sentiment, but Occidental Looking Good

These two oil companies are having a very unusual time in the investor sentiment field. While analysts seem to be of the same mind about their chances, investor sentiment tells a different story. On TipRanks, meanwhile, BP has a Smart Score of 6 out of 10, which is the slightly higher side of Neutral. Meanwhile, Occidental has a ‘Perfect 10’ Smart Score, which is the highest rating it can have and makes it a relatively safe bet to outperform the broader market.

Hedge fund involvement, however, is a very different story for each of the two firms. Hedge funds reduced their involvement with BP by 954,600 shares last quarter. Interestingly, hedge funds have been vacillating between raising and lowering their involvement with BP since June 2021.

Hedge fund involvement with Occidental, meanwhile, is up – and in a big way. Hedge funds added on another 75.5 million shares of Occidental in the last quarter, and this after three straight quarters of decline.

Insider trading at the two companies is likewise an unusual picture. There is no data available about insider trading at BP, which means no conclusions can be drawn therein.

That’s definitely not the case at Occidental, where insiders seem to be leaning toward buying in. In the last three months, Buy transactions led Sell transactions 11 to six. Insiders bought shares valued at a combined total of $1.4 billion in that period. Expanding the view to the full year, Occidental insiders were buying more than selling. Buy transactions outweighed Sell transactions by 26 to 20.

Retail investors, meanwhile—at least, those who hold portfolios on TipRanks—were also surprisingly opposed. Retail investors have been getting out of BP, with TipRanks portfolios that hold BP stock down 0.1% in the last seven days and down 0.7% in the last 30 days.

Meanwhile, retail investors’ stance on Occidental is significantly upbeat. In the last seven days, TipRanks portfolios holding Occidental Petroleum stock were up 0.5%. In the last 30 days, however, portfolios increased Occidental holdings by 12.9%.

Finally, there’s the matter of dividend history. BP’s dividend history was hit hard by the pandemic and has yet to recover. Though the company did continue to pay a dividend through the pandemic, it cut that dividend roughly in half between May 2020 and August 2020. It has yet to recover.

Meanwhile, Occidental Petroleum’s dividend history is much different. Occidental cut its dividend to under a penny per share back during the pandemic, starting in June 2020. It reversed that course in March 2022. However, it’s still a far cry from pre-pandemic days, with the dividend down more than 75% from pre-pandemic levels.

Oil is Fungible; Oil Companies are Not

For those not familiar with the term “fungible,” it essentially means that it can be readily replaced by another identical item. Oil is oil, no matter who pumps it. The oil that BP pumps is identical to the oil that Occidental Petroleum pumps.

Since this is the case, it would be safe to assume that oil companies would be performing similarly in nature. As we’ve seen from the various investor sentiment indicators, that’s not the case – not by a long shot. BP’s investor sentiment measures are flagging badly, while Occidental seems to be green across the board.

About the only thing the two had in common was that both were recently seen lagging the broader market, a development which really shouldn’t be when it comes to oil companies. Anyone who’s pulled up to a pump and swallowed hard at the gas prices displayed therein knows that investor sentiment at oil companies shouldn’t be a problem.

There’s one other major difference seen between the two, however. While Occidental Petroleum seems to be focusing mainly on oil, BP is starting to look beyond black gold for its future. Occidental, for example, is working to improve operations in carbon capture and storage, looking for a market between $3 trillion and $5 trillion in the making therein.

BP, meanwhile, is buying big into the Asian Renewable Energy Hub. It’s not only a major investor; it’s also operating the development and working it into what may ultimately be “one of the largest renewables and green hydrogen hubs in the world.”

That may be where the dichotomy is kicking in here. Occidental, right now, seems a lot more focused on actual oil than BP is. While BP is looking to a future beyond oil, Occidental seems to be scooping up more of the oil business right now.

That’s going to make an interesting picture for investors. Investing in oil right now is likely to pay big right now, but renewables and green energy may be the way to go for those looking past oil. This suggests a path to victory for both stocks – just at different stages.

Yes, both companies have been seen lagging the broader market. Again, that’s not something that should be seen in an era of $5 per gallon gasoline pretty much throughout the United States. Yet, concerns here about lagging the broader market may simply be overstated. Looking at some of BP and Occidental’s competitors reveals similar stories; Shell (SHEL) is down nearly 4% in trading today. ConocoPhillips (COP) is down 5%.

Concluding Views

I am bullish on both companies because both Occidental and BP seem to have solid use cases for their current positions. Occidental seems to be focusing more on oil, with a side of mitigating some of the side effects of oil use with its carbon capture projects. BP, meanwhile, seems to be putting more into a future that involves a lot less oil with its renewable efforts.

Buying in on Occidental is likely to allow investors to best catch the wave of high oil prices. BP, meanwhile, may be more of a ground-floor effort to be in on renewables. Regardless, though, both have solid positions and paths to success. Forecasts of record oil demand in 2023 likely won’t hurt either.

Occidental is perhaps the better buy among the two right now, though, thanks to its focus on current conditions, but don’t count out BP altogether, however. That stance on renewable operations is likely to serve it well down the line.


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