I’m back from Orlando. I spent five days in a house with eight couples and a combined 11 children. And as expected, I have come down with a stomach bug. Children… I swear. They will get you incredibly ill.
During my trip, I was with a lot of smart people. There were mid-level executives (likely future C-suite members) at Amazon, Microsoft, Boston Consulting Group, Barclays, and Goldman Sachs.
Yet, everyone was asking me – ME? – what my favorite stock is right now?
So, I’ll tell you too. And I hope you buy it. But if you don’t, that’s okay.
You must just really hate money.
My Favorite Stock (Warren Buffett Loves it Too!)
Every time that Occidental Petroleum (OXY) gets down to around $58.00, Warren Buffett and Berkshire Hathaway (BRK.A) are buying it. The government has given Buffett permission to own 50% of the company.
As chatter fills the air about Buffett’s involvement, some Wall Street analysts are getting even more aggressive on their outlook for OXY stock.
A report from Truist analyst Neal Dingmann suggests that OXY stock could hit $93 per share. The argument goes that Occidental stock could receive a bid from Berkshire Hathaway should the energy firm reach “investment grade.”
The oil giant would need to pay off more of its debt – hopefully down to a range of about $15 billion.
Dingmann suggests that it could accomplish this task in the year ahead.
I think that’s a fair target for the company. In fact, a defensive position on the stock would put its price somewhere around $80. It’s currently trading around $63.
OXY is a member of the Tactical Wealth Investor portfolio – and I’ll be providing another Value stock next week. But let me give you some additional insight on how to actively trade this name.
Put Spreads Are a Favorite Way to Play
I don’t need to buy the stock to make money. Instead, I can trade puts spreads on the stock at a level where Buffett is buying.
The OXY August 18, 2023, $55.00 put sells for $1.80. Investors can sell that put and then purchase the $52.50 put for the same month. That same put trades for about $1.30.
So, you will need about $200 in margin to make this trade. This is called a credit spread.
Your goal is to generate $50 (the credit spread) on roughly $200 in margin.
That represents a total return of about 25% (or 76% annually). Therefore, your breakeven price – due to the credit spread – is $54.50.
In addition, your probability of profit is north of 78.6%.
The worst-case scenario is that the stock does fall, and you purchase shares for nearly 8% less than the value of Warren Buffett’s recent purchase near the $58 level.
These are the types of strategies that I discuss with members of Tactical Wealth Investor (you can become a member right here).
I’m always looking for value in this market. And I love that there is effectively a Warren Buffett Put on OXY. Buffett has bought large chunks of OXY stock whenever it falls to around the $56 to $58 level.
But OXY might start charging higher now that it’s been improving its balance sheet and moving toward Investment Grade.
There might not be another chance to own the stock at this level again. So, consider this trade… and consider this stock.
If you don’t make the trade, that’s on you. As I said, people who aren’t buying and holding OXY must not like money.
To your wealth,
Garrett Baldwin
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
Market Momentum is Red
We’ve had several intraday switches on momentum in the last few hours. The markets are trying to stay grounded ahead of tech earnings, but we’re increasingly worried about a rotation out of tech and into safety stocks. I’m being very cautious right now. This price movement is very erratic.
