Top Oil Stocks Primed to Surge Ahead of Buffett's Occidental Move

Key Points

• Two oil stocks are presenting a strong thesis that they can beat Buffett's newest oil choice, Occidental Petroleum. 
• Backed by fundamental trends, analyst ratings, and EPS projections, they are set to boost profits first.
• Price action and dividends included, investors could have a chance to get paid before Buffett does. 

In today's environment, the lion’s share of market attention is focused on two main things. First, most have headed to the technology sector, particularly stocks like NVIDIA Co. NASDAQ: NVDA, exposed to the hype around artificial intelligence expansion and adoption throughout the global economy. The second area commanding the most market attention is the promise of interest rate cuts from the Federal Reserve.

What investors are missing in this equation is the coming cycle, and by cycle, this means the business cycle, which also happens to drive the commodity cycle just as much. The main commodities that lead the cycle are precious metals like gold and silver, which have recently made record annual highs and are drawing attention to mining stocks as potential winners. However, the second-most common commodity is still lagging: oil.

Struggling to break above the recent $85 to $95 price per barrel channel, oil prices now have a reason to break above this ceiling, all due to solid fundamental trends developing in the background. The next leg in the business cycle will likely call on stocks like Williams Companies Inc. NYSE: WMB and Expro Group Holdings NYSE: XPRO, giving them reasons to rally before others in the energy sector.

Buffett’s Choice is Good, But These Two Stocks Are Better

After a nine-day buying streak, Warren Buffett now owns up to 29% of all stock in Occidental Petroleum Co. NYSE: OXY. Of course, Buffett understands that the prospect of interest rate cuts in the next quarter could push demand for oil as things like travel, construction, and manufacturing become cheaper or more in demand for the global economy.

There are enough reasons to agree with this pick, one being Wall Street analyst forecasts for 27.8% earnings per share (EPS) growth in the next 12 months for Occidental stock. Backed by these growth rates, analysts at Susquehanna boosted their valuations on the stock to $81 a share, or 31% higher than today's stock price.

But Occidental is part of the second link of the energy sector's value chain: the integrated business. Before oil can be refined and integrated into other products, it needs to be produced through exploration and then transported through pipelines.

This is where stocks like Williams Companies and Expro Group come into play, as they deal in these sectors, so the corporate profit (EPS) value chain favors these two before any profit gain makes its way to Occidental Petroleum. Investors can check this very fact by spreading Wall Street analyst forecasts.

Why Expro Holdings Commands a Premium Valuation Over Peers

Expro Holdings projection lies at roughly 36.9% EPS growth for the rest of the year. Those at J.P. Morgan Chase & Co. see a price target of up to $30 a share, daring it to rally by as much as 33.3% from where it trades today; keep in mind that these targets haven't been changed since September 2023, and no news is sometimes good news.

More than that, investors can gauge market sentiment through how much premium a stock's future earnings commands compared to peers. Occidental Petroleum trades at a forward P/E ratio of only 12.5x today, falling significantly below these other production stocks. Conversely, Expro trades at a 17.5x valuation, which is also a premium of 40% over Occidental Petroleum.

Expro Holdings stock has seen roughly $281.6 million of institutional capital inflow over the past 12 months, bringing the level of ownership up to 92.1%. This means the stock has now become a high-stakes game for these asset managers to maintain and defend.

Williams Companies' Strong Valuation and Income Potential

Moving to Williams Companies, valuations and price actions are a better way for investors to gauge the market's reaction to the stock today. The stock trades at a new 52-week high, while Occidental Petroleum trades at only 87% of its 52-week high level. Williams Companies trades at a forward P/E multiple of 20.8x today, a premium of nearly 100% over Buffett's top choice. 

Investors can look for other stamps of quality when approving a potential addition to a future watchlist, some of which can be found in the way institutions regard these companies as well. 

Williams Companies' annual payout of $1.9 per share offers an attractive income for investors. With a dividend yield of 4.5%, it outpaces current U.S. inflation and prospects for GDP growth. Compare this to Occidental Petroleum, which only offers a 1.5% dividend yield and a much lower 88.7% institutional ownership rate.

Harnessing Potential in Overlooked Energy Stocks

As investors navigate today's market, attention often gravitates towards tech and interest rate changes. However, considering the business cycle and commodity trends reveals overlooked opportunities. Stocks like Williams Companies Inc. and Expro Group Holdings stand to benefit from the next phase in the energy sector. While Warren Buffett's investment in Occidental Petroleum highlights potential in oil, these upstream stocks offer stronger growth prospects and better valuations. With robust institutional support and attractive yields, Williams Companies and Expro Group present compelling cases for inclusion in any forward-looking portfolio.