Exxon Mobil stock is trading upwards at $91.39 on Thursday.
Although both equities are reliable bets on oil prices, one seems to be more appealing in the short run than the other. The top-performing oil stocks so far in 2022 include ExxonMobil (NYSE:XOM) and Occidental stock (NYSE:OXY). It’s not surprising to learn why: This year, crude oil prices surged to 15-year highs, generating enormous profits for oil exploration and production businesses. ExxonMobil and Occidental Petroleum both profited from this year’s high oil prices by rapidly reducing their debt, investing in growth, and increasing their dividend payouts.
But which oil stock should you choose right now, and why? To assist you in making your decision, consider the bull case for the stocks of ExxonMobil and Occidental Petroleum.
Exxon Mobil Distinguishes Itself Out for Its Financial Strength and Plans
Neha Chamaria (ExxonMobil): Although ExxonMobil is one of the biggest oil and gas businesses in the world, it is not the main reason you should take its stock into consideration. The largest integrated oil and gas company in the world is Exxon. Even though Occidental is an integrated oil business, roughly three-quarters of its sales last year came from upstream activities. While that might make Occidental stock more tempting in a rising oil price environment, a more diversified oil stock can help you better withstand the long-term volatility in oil and gas.
More critically, Exxon’s financial situation at this time is as stable as it can be. As of June 30, Exxon only had about $39.5 billion in long-term debt. To put that into perspective, the oil giant generated about $35 billion in operating cash flow and $23 billion in net income in just the first half of 2022.
The best news is that Exxon should continue to generate high margins even if oil prices continue to decline as a result of its continuous cost-cutting initiatives. Exxon was able to break even last year at a crude oil price of just $41 per barrel because of its low worldwide cost of production. By 2027, the break-even oil price could only be about $30 per barrel if all goes as planned. By that time, Exxon may have generated additional cash flows of billions of dollars, most of which will probably be paid out to shareholders as higher dividends. With an unrivaled 39-year history of consecutive yearly dividend hikes, Exxon is already among the greatest dividend-paying oil firms.
The Warren Buffett Effect Favors Occidental Stock.
Occidental Petroleum’s Matt DiLallo: While the fortunes of ExxonMobil and Occidental Petroleum fluctuate with oil prices, Occidental stock has an additional catalyst that, in my opinion, gives it the advantage over Exxon Mobil stock. That’s why Warren Buffett’s business, Berkshire Hathaway (BRK.A) (BRK.B), has been snatching up shares of Occidental and Exxon’s main rival Chevron but hasn’t bought a single share of Exxon.
Occidental stock, or 188.5 million shares, is presently owned by Berkshire, or 20.2%. This investment is valued at roughly $12 billion. Additionally, Berkshire has a $10 billion investment in preferred stock as well as stock warrants to purchase an additional $5 billion in Occidental shares. Additionally, Buffett has gained regulatory authority to purchase up to 50% of the oil company’s outstanding shares. Additionally, Berkshire has amassed a stake in Chevron worth almost $25 billion.
Since Buffett’s investments appear to follow a similar pattern to his investment in railroad behemoth BNSF in 2010, many have hypothesized that Buffett may eventually make an offer to purchase Occidental. Before purchasing the company in its entirety, Berkshire amassed a stake of more than 20%.
If oil prices continue to decline, the prospect of a Berkshire takeover should serve as a floor for Occidental stock price. In a similar vein, Chevron’s stock ought to fare reasonably well if petroleum prices continue to fall as Berkshire is likely to purchase more shares. Exxon, on the other hand, does not benefit from a Buffett floor. That increases the chance of it going down, whereas Occidental stock may go up more if Buffett makes a bid in the future because he would probably have to pay more to get the remaining shares.
Although I believe Exxon to be a reliable oil business, Buffett’s stake tilts the risk-reward balance in Occidental stock’s favor, making it the better investment of the two.
Superior: Occidental Stock or Exxon Mobil stock?
Both ExxonMobil and Occidental Petroleum are reliable oil companies with recent debt reductions that have allowed them to increase shareholder returns. But because of Buffett, shares of Occidental Petroleum have already increased by a factor of two this year, outperforming Exxon’s earnings by a factor of more than two. ExxonMobil may therefore be more appealing to the conservative investor trying to place a long-term wager on oil prices, even though Occidental stock may continue to ride the Buffett wave in the short future.
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