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TheStreet Open House

Occidental Petroleum's Stock Is on Sale -- But Not for Long

Value investors who like to buy after a correction might be cheered to know that since the Feb. 7 intraday high price of $88.74, shares of OXY corrected 13% before moving higher the past week. Even at Monday's high of $79.21, that's still 10.7% below the high on Feb. 7. OXY is still on sale and here's why.

To begin with, it maintained a trailing 12-month operating margin throughout 2012 of over 30% and by the end of 2012, it had operating cash flow of $11.3 billion on annual revenue of $24.17 billion. That means it can continue to service its $7.62 billion total debt (most recent quarter). With the Federal Reserve keeping interest rates near zero, the opportunity to reduce the cost of that debt is auspicious too.

As an investor who likes getting paid a substantial dividend while waiting for a stock's price to push higher, it is important to note that OXY's dividend payout ratio as of the end of 2012 was a manageable 38% of earnings. That's impressive in light of last quarter's 79.4% year-over-year drop in its quarterly EPS.

Over the past five years, the stock's price saw a gut-wrenching low during the late-2008 "financial fiasco," dropping to almost $40-a-share only to see prices nearly triple to around $118 in the first half of 2011.

Then OXY shares corrected to below $70 in the last half of 2011 only to leap back above $100 by the beginning of 2012. Study carefully the five-year chart below for clues as to what might happen next. OXY Chart OXY data by YCharts

When the company reports earnings and sales growth on April 22 (in three weeks), the analyst community's consensus average estimate for EPS calls for around a 13% decline from a year earlier. When it comes to sales growth and revenue, the same group's average estimate is for a meager 1.7% increase.

My point is that expectations are low, the stock's price has been under a lot of pressure, and the officers of the company will be on the hot seat when they step into the earnings confessional. When you look at Oxy's Web site describing its businesses and operations, you may perceive that OXY is the kind of company that a wealthy activist hedge fund would like to take control of.

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