Occidental Petroleum Stock Remains a Fundamentally Risky Bet

Stocks to sell

Blindly investing in stocks is an easy way to lose your shirt. Too often a stock takes a hit and suddenly seems like a great target to snap up before it recovers. But that’s a risky strategy when you don’t do your research. Occidental Petroleum (NYSE:OXY) might look like a buying opportunity now, but let me reassure you that it is not.

OXY stock Popped Yet There's Still Nothing to Like

Source: Pavel Kapysh / Shutterstock.com

If you have a tolerance for risk, I put together a list of seven stocks currently worth gambling on. But you won’t find OXY stock on there. The companies on my list let you swing for the fences with at least some hopes for a home run. Occidental Petroleum is different.

This F-rated stock is long past its prime. OXY has been battered this year, making a tempting target, but there is nothing in future projections for the oil sector that suggest a meaningful recovery is in the cards.

Occidental Petroleum Stock is Still Near Lows Not Seen in nearly Two Decades

As with other oil stocks, OXY was body-slammed in early 2020, first by an oil price war and then by the novel coronavirus. Russia and Saudi Arabia flooded the market in the beginning of the year, putting intense pressure on smaller producers. And just as that spat was escalating, the pandemic hit in full force.

With the U.S. in lockdown, people stopped driving, flying and cruising. Demand for gas tanked, to the point that oil was at negative pricing at one point in April. OXY stock subsequently plummeted 79% in three months. 

That rapid drop might make have you thinking about it. A recent uptick — with gains of 45% in June — might be seen as a sign Occidental is on the road to recovery. 

However, OXY is still a bad bet. This is a stock that has been in decline since 2011. Trading well above the $100 level at that point, it had been on a constant slide. Before everything went sideways, $47.24 was its highest close in 2020. So this is a stock that’s already in long-term trouble and the future is more likely to accelerate that trend than to reverse it.

Could Things Turn Around for Occidental Petroleum?

The oil industry has always been volatile. Many countries are big players in the market, and any one of them could trigger a dramatic spike in oil prices. Oil prices being driven up by conflict in the Middle East is one classic example. 

However, these events don’t have the same lasting impact on the global oil market they once did. Part of that is because many other nations across the world have stepped up oil production, including Mexico, Venezuela and the United States (which hit record production levels in 2019).

Global oil demand is projected to fall by a record amount in 2020 due to the coronavirus. A production or conflict-related reduction in supply even less likely to have a big impact on prices.

The future doesn’t look promising for oil companies like Occidental Petroleum.

In a Knowledge @ Wharton article, University of Wyoming Professor Charles F. Mason pointed out the potential impact of lasting “behavioral changes” triggered by the pandemic. Companies allowing more employees to work from home, or to come into the office for fewer days a week, will translate to lower gas demand. Offices with fewer workers could downsize, requiring less energy for heating and ventilation.

In addition, the post-pandemic world is predicted to be one where business flying becomes less common.

Reduced demand because of behavioral change is one thing. But the long-predicted rise of electric cars is gaining momentum. Electric car maker Tesla (NASDAQ:TSLA) is worth more than the big three American auto makers combined. In February — despite China being in the throes of the pandemic — global plug-in EV sales increased 16% year-over-year.

It’s entirely possible that 2019 will go down as the year the world hit peak oil demand, with a long, slow decline ahead.

Bottom Line on OXY Stock

The bottom line on OXY? This is an F-rated stock that shows little prospects of recovery. It’s been hammered by current market forces, the future for the industry looks bleak and it’s saddled with $39 billion in junk status debt.

Occidental Petroleum is on my list of “7 Sinking Oil Stocks Investors Should Avoid,” and even if OXY stock has shown some signs of life over the past few weeks, it still belongs on that list.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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