Goldman Sachs Vs. Warren Buffett: 2 Sides Of The Occidental Petroleum Trade

It is not too often that two titans of Wall Street are on the opposite side of a trade, but that is the case with a Goldman Sachs analyst and Warren Buffett regarding Occidental Petro Corp OXY.

The Wall Street firm's downgrade and corresponding price action make it the PreMarket Prep Stock of the Day.

Buffett In A Bit Early: Over the last three years, Buffett has built a massive stake in Occidental, beginning with $10 billion in preferred stock in the company when it was seeking financing to purchase Anadarko Petroleum in the summer of 2019.

One could argue that it was not the greatest purchase at that time, as the issue plummeted from the $60 area to its COVID low, While the issue bottomed in March 2020 at $9, the ultimate low was made in October of that year at $8.52.

Don’t Frown, Average Down: While that investment philosophy can lead to a disaster, especially for shorter-term traders, investors with a much longer time horizon can use it to their advantage.

In the case of Occidental, Buffett has been on a massive buying spree this year. Warren Buffett's Berkshire Hathaway Inc. (BRK-A) (BRK-B) disclosed last week that it bought another 12 million shares of the issue, raising its stake in the oil company to 18.7%. 

Why? Many speculate, including the co-hosts of the "PreMarket Prep" show, that Buffett is eventually going to purchase the entire company.

If that is going to be the case, perhaps at a higher undisclosed price, then Buffett may very well be adding to a big winner.

With its large horde of cash, it is not inconceivable that Buffett could make an offer to buy the entire company and incorporate Occidental into his behemoth portfolio.

Sold To You: Obviously, Goldman Sachs analyst Neil Mehta does not share that same opinion, as evidenced by his downgrade of the issue from Buy to Neutral before the opening on Monday.

His $70 price target still factors in approximately $10 from the current price of $59.46 as of Monday afternoon. 

The big unknowns: what are Buffett’s true intentions — and the future course of the U.S. economy?

PreMarket Prep's Take: As stated above, the hosts of the show acknowledged the impact of the Goldman Sachs downgrade, but we're viewing it from the perspective of a potential “buy the dip” opportunity.

Co-host Dennis Dick stated: “If I was going to buy an oil stock today, which I am not, it would be Occidental.”

The author of this article noted the series of lows at the $57 area as lower as an area of major support if the issue follows through on Friday’s retreat.

OXY Price Action: After a lower opening, the issue attempted to reach the bottom of Friday’s range ($60.45), but came up shy, peaking at $59.99 and resuming its move lower.

As of 2 p.m. EST, it has found buyers well ahead of the aforementioned support, falling to $58.68, and is on the rebound. It is now creeping toward the high for the session.

The discussion on the issue from Monday’show can be found here:

Photo via Shutterstock.