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Occidental Petroleum Corporation (OXY): Is This Stock a Foolish Investment at These Prices?

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We all know it’s always best to buy when stocks are inexpensive, but we must also observe the opposite and sell when stocks appear over-priced. Recently Occidental Petroleum Corporation(NYSE:OXY) has seen quite a run, moving about 25% in the last six months.

Chart Courtesy of The Motley Fool

However, upon looking at the fundamentals I am a bit skeptical. Comparing metrics to industry leaders Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY) looks to be overvalued in a number of ways.

Valuation Occidental ExxonMobil Chevron Industry
P/E 17.20 9.10 9.20 9.0
Price/Sales 3.16 0.85 1.03 0.61
Price/Book 1.84 2.39 1.68 1.46
Yield 2.70% 2.80% 3.30% 5.20%
Return on Assets 6.70% 16.90% 11.00% 8.60%
Return on Investment 9.20% 32.90% 17.10% 15.10%

Information from The Motley Fool

The P/E is almost twice that of Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX). But there is absolutely no reason this stock deserves to trade at a premium. Occidental Petroleum Corporation (NYSE:OXY) has a RoA and RoI that is underperforming both Exxon and Chevron. Its price/sales of 3.16 is five times higher than the industry average of 0.61. The price/book of 1.84 isn’t much better at over 20% above the industry average of 1.46.

Occidental Petroleum Corporation (NYSE:OXY)

Finally, the yield is a less than impressive 2.70%, which, when the 5 year inflation average of 1.98% is taken into account, produces very little real return. With a 42% payout ratio, compared to an industry average 32%, there appears to be very little room for future dividend increases. With a big payout ratio and a low rate of return on equity the growth of this position should be called into question.

Results for the most recent quarter were disappointing for Occidental Petroleum Corporation (NYSE:OXY) with revenue decreasing from $6.27 billion in Q1 of 2012 to $5.87 billion in Q1 of 2013. Earnings also suffered declining from $1.92 to $1.68 over that same period. This could be attributed to the lower price for worldwide crude oil/per barrel received, decreasing from $107.98 to $98.07. With oil currently holding around the low to mid $90 range, and EIA Crude Oil Projections showing $93.17 for 2013 and 92.25 for 2014, look for revenue to continue decreasing.

The only two highlights that I could find in the recent quarterly reports were that operating costs had dropped 19% relative to 2012 and that midstream operations seemed to be gaining momentum. But these figures alone do not remotely begin to justify the current valuations for this stock.

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