Can Occidental Petroleum (OXY) Stock Beat The Market?

Occidental Petroleum (NYSE: OXY) is a leading diversified energy company. It has global oil and gas operations, marketing and midstream operations, a chemicals business, and a lower-carbon energy segment. The company's high-quality operations and management team have made it a top holding of Warren Buffett's Berkshire Hathaway.

Here's a look at whether the oil stock has beaten the market over the past five years and if it could do so in the future.

Image source: Getty Images.

Drilling down into Occidental Petroleum's returns

Here's a look at its returns compared to the S&P 500 over the last five years:

Data source: Ycharts.

As the table below shows, while Occidental's stock and total return have badly trailed the market in more recent years, it has crushed the S&P 500 over the past five years.

Crude oil prices have influenced the company's returns during this period. WTI, the primary U.S. oil benchmark, has fallen 17.5% this year and is down over 22% during the past three years, which correlates with the decline in the company's stock price during that period. Meanwhile, WTI is up almost 25% over the past five years, which has helped fuel its rally during that time frame.

However, oil prices haven't been the only factor influencing Occidental's performance in recent years. Occidental has gotten a boost from Berkshire Hathaway's purchases, which started in early 2022. Additionally, the oil company has benefited from its strategy of paying down debt following its 2019 acquisition of rival Anadarko Petroleum. That debt reduction has taken the pressure off its balance sheet.

Can Occidental beat the market in the future?

Occidental Petroleum has been narrowing its focus in recent years. It has sold off several non-core assets to repay debt, including the recent agreement to sell its chemicals subsidiary, OxyChem, to Berkshire Hathaway in a $9.7 billion deal. That sale will enable the company to get its debt principal below the $15 billion target it set upon agreeing to buy CrownRock in late 2023.

The CrownRock purchase significantly enhanced the company's upstream oil and gas portfolio, which now boasts over 20 years of low-cost resources. With its balance sheet finally back on a firmer foundation, Occidental can focus on tapping into this resource to grow shareholder value.

The company is also investing in building a lower-carbon energy platform focused on carbon capture and storage. Occidental is in the process of starting up its first direct air capture unit, which could be the first of many such facilities. It's also working to develop several sequestration hubs.

These growth catalysts could give Occidental the fuel to continue delivering market-beating returns in the future.

A market-beating oil stock

Occidental Petroleum's stock has underperformed the market in more recent years due to lower oil prices. However, it has trounced the market over the longer term. While higher oil prices have contributed to its outperformance, the company has also benefited from its strategy to improve its operations and balance sheet, which caught the attention of Warren Buffett's company. With more growth ahead, Occidental could continue to beat the market in the future if oil prices cooperate.

Matt DiLallo has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.