Undervalued by 28%, This Warren Buffett Stock Is a Buy
Joshua Aguilar - 1 July, 2025 | 7:15PM
Berkshire Hathaway expects to maintain its sizable stake in this company for the long term—and the stock looks like a bargain today.

Energy Sector artwork

Berkshire Hathaway BRK.A/BRK.B CEO Warren Buffett suggested in a recent shareholder letter that Occidental Petroleum OXY is a stock that his company might own forever. Oxy is one of the world’s largest independent oil and gas producers. While Morningstar doesn’t think the company currently has an economic moat (due largely to where Oxy sits on the cost curve), management has been deleveraging the balance sheet following the CrownRock acquisition, which should brighten its outlook. In fact, we think the company is on its way to improving returns on invested capital. Best of all, its stock looks cheap today. Oxy lands on our list of The 5 Warren Buffett Stocks to Buy After Berkshire Hathaway Files New 13F and is one of Morningstar Chief US Market Strategist Dave Sekera’s 4 Cheap Stocks to Buy Before They Turn Around.

Occidental’s upstream operations are spread across the US, Middle East, and North Africa. Its consolidated midstream business provides gathering, processing, and transport services to the upstream segment; the company also holds a majority equity interest in Western Midstream. The portfolio includes a chemicals business, which produces caustic soda and PVC. The $55 billion Anadarko deal left Oxy with a heavy debt burden before the pandemic, but drastic measures helped management steady the ship, and the company took full advantage of the subsequent rebound in commodity prices, generating enough cash to fully repair the balance sheet and pave the way for significant capital returns. The roughly $12 billion CrownRock purchase in 2024 provides Oxy with a high-grade asset portfolio and adds significant production capacity in the Midland Basin. While this acquisition comes at an elevated capital cost, we think it will help create companywide operating efficiencies.

Key Morningstar Metrics for Occidental


Economic Moat Rating

Oxy generated substantial excess returns on invested capital during 2008-14. This record was upended by the collapse in global crude prices at the end of 2014, and economic profits evaporated the following year. Oxy eventually adapted to lower prices by improving efficiency and using new technology to reduce costs. But just when profitability was recovering, the company jumped into a very large and expensive corporate acquisition in 2019, which took several years to digest. The target, Anadarko Petroleum, did not itself have a moat, and Oxy paid a substantial takeover premium. While debt remains elevated following the CrownRock acquisition, we believe the company has turned the corner and is on the cusp of improving its return on capital profile.

Read more about Occidental’s moat rating.

Fair Value Estimate for Occidental Stock

Our fair value estimate is $59 per share. We assume West Texas Intermediate oil prices will average $62 per barrel in 2025 and $58/bbl in 2026 while Henry Hub natural gas prices average $4.11 and $4.52 per thousand cubic feet in those years. Terminal prices are defined by our long-term midcycle price estimates, which are currently $60/bbl Brent, $55/bbl WTI, and $3.30/mcf natural gas. Our production forecast for 2025 is 1.4 million barrels of oil equivalent per day, including the CrownRock acquisition. That drives 2025 EBITDA to $14.6 billion. We expect free cash flow before working capital to fall to $3.7 billion in the same period. Our 2026 estimates are for production of 1.4 mmboe/d, EBITDA of $15.4 billion, and free cash flow of $5.1 billion.

Read more about Occidental’s fair value estimate.

Risk and Uncertainty

Deteriorating oil and natural gas prices would pressure Oxy’s profitability, reduce cash flows, and drive up financial leverage. An increase in federal taxes or a revocation of the intangible drilling deduction that US companies enjoy could also affect profitability. Material environmental, social, and governance exposure—primarily via greenhouse gas emissions and oil spills—creates additional risk for investors in exploration and production companies. In addition, Oxy’s US offshore drilling campaign requires ongoing approvals from the Department of the Interior. As this entity is controlled by the executive branch, it can suspend permitting activity without congressional approval.

Read more about Occidental’s risk and uncertainty.

Occidental Bulls Say

  • Oxy has a dominant position in the Permian Basin, which is the cheapest source of production in the US and is expected to be a major growth engine in the next few years.
  • Conventional assets in the US and the Middle East complement the company’s shale operations nicely by generating stable cash flows from assets with a much lower base decline rate.
  • The Oxy Low Carbon Ventures segment is synergistic with the chemical business. Oxy’s enhanced oil recovery portfolio holdings and expertise are a natural advantage in carbon capture.

Occidental Bears Say

  • Though Oxy’s Permian wells exhibit very high initial production rates, they also decline very quickly.
  • The Anadarko acquisition bolstered Oxy’s Permian footprint but also brought less desirable assets, such as its Western Midstream stake and its North Africa operations.
  • Oxy will have to share the spoils from its ambitious carbon capture plans, and since it isn’t providing financing or engineering, it will have to give away a sizable working interest.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of June 25, 2025.


The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.