Occidental Petroleum Stock: Should You Buy The Dip?

OXY: Occidental Petroleum logo
OXY
Occidental Petroleum

The shares of Occidental Petroleum (NYSE: OXY) have gained 20% since early February, propelled by OPEC’s decision to continue with production curbs until April. Brent and WTI benchmark have surpassed $60/bbl mark, defying EIA’s expectations of $56/bbl in the first quarter of 2021. After Anadarko’s acquisition in 2019, Occidental’s long-term debt surged to $36 billion – a sizable burden for the stock having market capitalization of $25 billion. While rising oil prices are a boon to OXY stock, assisting excess cash generation after interest payments, but recently introduced restriction measures in Europe are expected to weigh on oil demand in the near-term.

According to the Trefis Machine Learning Engine, which identifies trends in the company’s historical stock price data, returns for Occidental Petroleum stock average 0.4% in the next one-month (twenty-one trading days) period after experiencing a -1.7% move in a week (five trading days). Thus, the stock is likely to underperform the S&P500 over the next month (twenty-one trading days).

But how would these numbers change if you are interested in holding Occidental Petroleum stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Occidental Petroleum stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

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MACHINE LEARNING ENGINE – try it yourself:

IF OXY stock moved by -5% over five trading days, THEN over the next twenty-one trading days, OXY stock moves an average of 1 percent, which implies an excess return of  -0.8 percent compared to the S&P500.

More importantly, there is 52.9% probability of a positive return over the next twenty-one trading days and 44% probability of a positive excess return after a -5% change over five trading days.

Some Fun Scenarios, FAQs & Making Sense of Occidental Petroleum Stock Movements:

Question 1: Is the average return for Occidental Petroleum stock higher after a drop?

Answer:

Consider two situations,

Case 1: Occidental Petroleum stock drops by -5% or more in a week

Case 2: Occidental Petroleum stock rises by 5% or more in a week

Is the average return for Occidental Petroleum stock higher over the subsequent month after Case 1 or Case 2?

OXY stock fares better after Case 2, with an average return of 1% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 4.5% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Occidental Petroleum stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold Occidental Petroleum stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For OXY stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for Occidental Petroleum after a larger loss over the last week, month, or quarter.

Question 3: What about the average return after a rise if you wait for a while?

Answer:

The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although OXY stock appears to be an exception to this general observation.

OXY’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Occidental Petroleum stock by changing the inputs in the charts above.

With OXY stock gaining from  the extension of OPEC curtailments, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for New Jersey Resources vs. World Wrestling Entertainment shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

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