Dealmaker’s Diary: An Energy Giant With 34.7% Upside

Alpesh Patel|January 9, 2025

Why does the world’s greatest investor keep pouring billions into this energy stock?

Warren Buffett’s Berkshire Hathaway now owns a whopping 28% stake in this company – and it’s still buying. While most investors are chasing AI dreams, the Oracle of Omaha sees something special here.

I’ve been watching this one closely, and my proprietary GVI system is picking up some fascinating signals. Though it falls just shy of my usual stringent criteria, there’s a hidden opportunity here that most analysts are missing.

The numbers tell an intriguing story: the stock is trading at just 14.7 times earnings (dirt cheap in today’s market). It has a good risk to reward ratio… and the company pays a dividend.

But here’s what really got my attention: the technical setup shows strong momentum for a surge upward.

The company is perfectly positioned for the coming energy boom.

This the kind of research my clients pay thousands for… but you get it for FREE as a Total Wealth subscriber.

Click on the image below to dive in.

Happy New Year, friends, and welcome to the Dealmaker’s Diary Stock of the Week. The grand reveal is one you will have heard of, but it’s come across our radar for reasons I’m about to explain.

It’s Occidental Petroleum (OXY).

It’s a company everybody knows. But here’s a reminder of a few pertinent facts you might not be aware of.

I didn’t pick this stock because of the “drill, baby, drill” mantra of the incoming president.

For one, it pays a dividend.

And two, it caught our attention because of the fundamentals behind it. Notably, Berkshire Hathaway owns 28%, which is significant.

It’s a healthy company. On my Growth-Value-Income (GVI) rating, it falls below my minimum of 7, 8, 9, or 10. So it wouldn’t be part of my GVI trading research service, but this is an opportunity to explain how that works and how when we’re analyzing stocks, we have even more stringent criteria.

My proprietary algorithm weighs and measures a company’s valuation, growth, and dividend yields. It then weighs the importance of value, growth, and income. Income is the least important, not to me, but based on academic research. Then I get an overall score. I wouldn’t normally pick something below 7, but for the Dealmaker’s Diary, that’s acceptable because I’m focusing more on momentum.

The forecast P/E ratio is 14.7. So you’re paying $14.70 for every forecasted dollar of profit or earnings in the company. It is neither expensive nor cheap for an oil company.

Cash return on capital invested is 9.2. I’m using the Goldman Sachs Wealth Management formula here. You can learn about why CROCI is important right here. While 9.2 is just outside the top 25% of all companies, it’s acceptable for the Dealmaker’s Diary.

The Sortino ratio, measuring average return to downside risk, is 0.5. Anything above 0.3 satisfies me. This shows good reward compared to downside volatility or risk.

Speaking of volatility, it is slightly high, but you’ve been compensated by returns. Ideally, I want something below 20% because I don’t particularly like volatility. You can get returns without high volatility. The alpha outperformance of the market is fine.

What caught my eye? We’re looking at momentum, which is the monthly measure of short and medium-term prices. Ideally, I want that trending upward. Normally, I’d wait until it’s flattened out and rising. The weekly should follow the same pattern. That indicates the bottom, and we should hopefully get a mirror reflection, which typically provides a good return over a year.

I’d probably put a stop below that point because if it’s supposed to go up, it shouldn’t drop that far.

On a discounted cash flow basis, another valuation measure that’s not essential but useful, it’s 34.7% undervalued. Based on discounted cash flow, it should be at $77, which would take it to where we roughly estimated.

This gives you insight into my GVI trading research service and our thorough analysis process, while being useful in its own context. Note that I didn’t provide a whole narrative about oil prices, demand, or growth.

Yes, there’s a global push for growth. Economies worldwide are somewhat concerned, which is why they’ve been reducing interest rates. Growth usually implies more oil demand. You might think with “drill, baby, drill,” there’d be a greater supply of oil, therefore lowering prices due to a glut.

In reality, there are more profits to be made if more oil fields are open to all companies. So that factor can work both ways.

There you have it. Thank you.