Occidental Petroleum (OXY -1.04%) stock has been a rocket in recent years. If you had invested $250 into the stock four years ago, you'd have roughly $1,250 today. That's a return of around 400%.
But there's a catch: Over the last six years, the total return of Occidental stock is around 0%. How is that possible? It's possible because shares fell by 80% from 2019 to 2021. The latest surge was simply the stock returning to its former levels.
What do you need to know about the stock today?
Three things to know about Occidental stock today
The first thing to know about Occidental stock is that its future is tied with oil prices. This is true of nearly any fossil fuel producer. Over the last five years, for instance, crude oil spot prices have risen by 28%. Occidental stock, meanwhile, rose in value by 22%. Not an exact match, but it's clear what the long-term driver is for share price volatility.
The second thing to know about Occidental today is that, as long as oil prices remain high, the company should be quite profitable. Nothing can insulate the share price if oil prices slide, but with crude above $80 per barrel, Occidental has consistently generated double-digit profit margins. If you're an oil bull, this stock is a good fit for you.
Finally, Occidental is in the midst of a major business transition. It is acquiring CrownRock, an independent oil and natural gas company, for $12 billion. To fund the acquisition, Occidental will pay $9 billion in cash, issue $1.7 billion in new shares, and assume $1.2 billion of debt. While management is of course bullish on the transaction, the acquired assets are experiencing production declines of around 35%. That compares to companywide decline rates between 20% and 25%. If oil prices weaken, Occidental stock could slide sharply again as the company deals with lower profitability, higher debt levels, and lower-quality assets.
