Jim Cramer Isn’t a Big Fan of This Buffett Stock

I was quite surprised to hear that Mad Money host Jim Cramer wasn’t too upbeat on shares of Occidental Petroleum (NYSE:OXY) during his show’s Lightning Round segment recently. Indeed, Occidental is now quite a well-known Warren Buffett stock, one that’s continued to decline since Berkshire Hathaway (NYSE:BRK-B) initiated its position a while ago. Indeed, if Buffett’s conglomerate is hanging onto its position, shouldn’t other investors also be holding on or even buying more into weakness? That’s the big question.

Jim Cramer May Not Like OXY, but There’s Value to Be Had

Either way, Cramer has not been the biggest bull on oil and especially not Occidental, which he described as “not even a good one.” Though the price of admission into OXY shares screams of deep value, I’d have to agree with Cramer in that the name probably isn’t the best place to put new money into the markets.

Of course, recent news surrounding Berkshire’s $9.7 billion has been making waves in shares of OXY. The stock fluctuated wildly, especially after it was revealed that the price Berkshire will pay was around $300 million, less than the original $10 billion that some expected, for the OxyChem assets.

Either way, some Wall Street pros think the OxyChem sale is a plus for Occidental Petroleum. Given the market’s reaction in shares of OXY (the stock is up more than 24% since its year-to-date low in April), I’d argue it’s a great deal for Berkshire as well given it’s been a number of years since Berkshire made a splash this big.

This Analyst Likes What the OxyChem Sale Means for Occidental

Either way, it looks like Berkshire got a sweet deal for the assets, and OXY shareholders seem uncertain as to the path forward. Bank of Nova Scotia analyst Samantha Hoh upgraded OXY shares while hiking the price target by $7.00 to $55.00 per share. Why? Hoh believes that the move will help the firm chip away at its debt (of around $23.3 billion) and allow flexibility for share repurchases and dividend growth. I think Hoh is right on the money. Occidental is a cheap-looking stock, making it a great candidate to unlock value via share buybacks.

Additionally, shareholders are sure to appreciate the greater financial flexibility and continued dividend hikes moving forward, especially as the stock continues to lose a bit of its lustre. Indeed, Occidental may not be the most efficient energy operator on the planet.

But it has impressive assets and a valuation that looks severely depressed. In any case, the oil markets have been in a bit of a rut, and if prices sink below $60 per barrel, all energy plays across the board could face mounting pressures. The big question for buyers of Oxy at current levels is whether management can unlock enough operating efficiencies after the big OxyChem sale. Though I understand why Cramer isn’t in a rush to recommend the stock, I think OXY shares are worth hanging onto, especially while they’re down close to 40% from five-year highs.

Occidental Certainly Looks Cheap

So, should you go with Cramer’s advice or follow in the footsteps of Buffett’s Berkshire? At 16.1 times forward price-to-earnings, OXY still looks quite discounted, and with other billionaire legends buying up the stock in recent quarters, I certainly wouldn’t sleep on the name if you’re a fan of energy and seek a modest multiple.

As is the case with most oil names, though, it could take a very long time and continued volatility before shares begin to show signs of paying off. Until then, the 2.2% dividend yield is worth collecting as management looks to pursue a buyback that I think has a high chance of paying off over the long term.