Occidental Petroleum: A Resilient Play in Prem Watsa's 2025 Portfolio

The energy sector has faced headwinds in 2025, with oil prices dipping below $70/barrel and macroeconomic uncertainties clouding the outlook. Yet, among these challenges, Occidental Petroleum Corporation (NYSE:OXY) has emerged as a standout pick for value investors. Renowned investor Prem Watsa of Fairfax Financial Holdings has positioned OXY as one of his top stock selections for 2025, citing its robust fundamentals, diversified operations, and undervalued equity. This article dissects why OXY has captured Watsa’s attention—and whether it deserves a place in long-term portfolios.

The Case for Occidental: A Value Investor’s Dream

OXY’s inclusion in Watsa’s top 10 picks reflects his disciplined focus on undervalued assets with durable cash flows. As of April 2025, analysts project a 32.16% upside for OXY, driven by its Permian Basin dominance, diversified revenue streams, and a 2.66% dividend yield backed by 52 years of consecutive payments.

Permian Basin Assets: OXY’s 4.5 million net acres in the Permian Basin, one of the most prolific U.S. oil regions, are a key differentiator. This asset base allows the company to maintain production efficiency even during price dips, as seen in Q1 2025, where realized oil prices averaged $71.07/barrel—up from $69.73 in Q4 2024.

Diversification Beyond Oil: While OXY is a top-tier oil producer, its Chemical segment (accounting for 20% of revenue) and Midstream infrastructure provide stability. These segments benefit from long-term contracts and inelastic demand, reducing reliance on volatile commodity prices.

Navigating Near-Term Challenges

Despite its strengths, OXY’s stock has declined 20% YTD due to broader sector pressures. The lowered price target by Stephens to $58 from $60 underscores near-term concerns, including Federal Reserve rate hikes and trade tensions. However, Watsa’s strategy prioritizes long-term value over short-term volatility.

Resilience Through Dividends: OXY’s 2.66% dividend yield—higher than both Chevron (2.1%) and ExxonMobil (1.9%)—signals confidence in cash flow sustainability. The company’s 52-year dividend streak is a rare badge of stability in an industry prone to boom-and-bust cycles.

Why Watsa’s Call Matters

Fairfax Financial’s $297.47 million stake in OXY represents more than just a financial bet—it’s a vote of confidence in Watsa’s total return-oriented approach. His portfolio, diversified across energy, tech, and financials, aims to capitalize on undervalued equities while hedging against sector-specific risks.

Watsa’s rationale hinges on discounted valuation metrics: OXY trades at a price-to-book ratio of 0.8x, below its five-year average of 1.2x. Analysts argue this discount doesn’t reflect the company’s $100 billion+ asset value or its $15 billion in annual free cash flow potential under $80/barrel oil.

The Bottom Line: A Steady Hand in Volatile Waters

Occidental Petroleum’s inclusion in Watsa’s top picks is no accident. With Permian Basin leverage, diversified cash flows, and a proven dividend track record, OXY offers a compelling value proposition. While near-term headwinds like oil price fluctuations and Fed policies may test investor patience, the stock’s 32% upside potential and Fairfax’s multi-decade investment horizon suggest this is a stock built to weather the storm.

In conclusion, OXY’s fundamentals—$71/barrel realized pricing, 4.5M Permian acres, and a 2.66% yield—align perfectly with Watsa’s philosophy of buying quality at a discount. Even with sector-specific headwinds, the company’s resilience and valuation suggest it could be a cornerstone of value-driven portfolios for years to come.

Final Takeaway: For investors willing to look beyond 2025’s volatility, OXY represents a rare blend of asset strength, dividend reliability, and valuation upside—a classic Watsa-style contrarian play.