2 Overlooked Oil Stocks to Buy Now Before They Soar

Among the companies in the energy patch that have surged this year are Occidental Petroleum (NYSE: OXY) and Ardmore Shipping (NYSE: ASC). These two have seen their stock prices rise by more than 36% and 75%, respectively. However, considering their guidance this year, they appear to be bargains compared to other oil stocks.

Occidental is a major upstream producer that has become a favorite among investors seeking exposure to the Permian Basin and high oil prices, while avoiding the current woes in the Strait of Hormuz. Ardmore Shipping has emerged as a standout in the midsize product and chemical tanker space.

Both stocks contain risks. Occidental’s volatility is tied to the price of global crude benchmarks, while Ardmore is susceptible to the whims of global shipping rates. However, each provides good shareholder returns and is paying down debt, making them good long-term purchases.

Here are three reasons to buy each stock.

Image source: Getty Images.

First, here’s a look at Occidental.

1. Occidental has dramatically trimmed its debt

The Houston-based company produces, markets, and transports oil and natural gas. It sold its OxyChem division to Berkshire Hathaway for $9.7 billion in January, allowing Occidental to retire its principal debt to $13.3 billion, down from more than $20 billion just six months ago.

Management is now fast approaching its $10 billion target, a level that would trigger a massive shift in capital allocation toward increased dividends and share buybacks. This rapid deleveraging has already saved the company approximately $830 million in annual interest expenses, directly boosting free cash flow.

First-quarter earnings per share rose 306% over the same period a year ago to $3.13, thanks primarily to the higher realized crude oil prices.

2. Operational efficiency and a boost from Berkshire Hathaway

Occidental continues to deliver industry-leading results in the Permian Basin, the most cost-effective and productive oil field in North America. In its first-quarter earnings report, the company said it is producing at record levels, averaging 1.43 million barrels of oil equivalent per day.

Berkshire Hathaway owns nearly 27% of Occidental’s outstanding shares and has warrants that allow it to buy 83.9 million shares of Occidental common stock at an exercise price of $59.59 per share. That gives Occidental’s shares a floor and downside protection few other stocks can match.

3. Enhanced free cash flow and capital efficiency

Despite a volatile global energy market, Occidental has trimmed its capital spending to roughly $5.7 billion for 2026, an 8% reduction from the previous year. By using advanced simultaneous completion techniques in the Permian, the company has slashed well costs by nearly 30% since 2023.

These efficiencies, combined with higher realized oil prices driven by ongoing supply disruptions in the Middle East, enabled Occidental to generate $1.7 billion in free cash flow in the first quarter, a 52% year-over-year increase. With a break-even price of approximately $38 per barrel, Occidental is positioned to remain highly profitable even if oil prices retreat from their current highs.

That efficiency has allowed the company to boost its dividend for five consecutive years, including an 8.3% increase this year to $0.26 per quarterly share, yielding around 1.75% at its current share price.

Now let’s take a look at Ardmore.

1. Huge earnings growth and demand growth for Ardmore

Ardmore, based in Ireland, owns and operates midsized tankers. Unlike companies that transport raw crude oil, which require Very Large Crude Carriers (VLCCs), Ardmore focuses on midsized container ships to transport clean petroleum products and chemicals.

Ardmore reported first-quarter EPS of $0.58, up a massive 314% year over year, and revenue of $87.9 million, up 18.8% year over year. This growth is fueled by soaring Time Charter Equivalent (TCE) rates. While first-quarter rates for medium-range tankers averaged roughly $33,705 per day, the outlook for the second quarter is even more bullish, with spot rates tracking at approximately $52,100 per day.

Geopolitical disruptions, including rerouted trade flows in the Middle East, have extended voyage lengths and tightened the market, allowing Ardmore to command premium pricing that far exceeds its cash break-even levels of roughly $11,700 per day.

2. A strong commitment to a growing dividend

In late April, the company doubled its dividend payout ratio to two-thirds of adjusted earnings. This resulted in a declared first-quarter dividend of $0.39 per share, a staggering increase from previous levels. This policy shift signals management’s confidence in sustained cash flow and a commitment to returning capital to shareholders immediately.

The company increased its quarterly dividend by 333% this year to $0.39 per share, yielding roughly 3.43%.

3. Ardmore’s fleet modernization and low debt

While many shipping companies struggle with aging fleets or heavy debt, Ardmore is improving its fleet while paying down debt. The company recently signed contracts for two advanced 40,500 deadweight-tonnage International Maritime Organization 2 product/chemical tankers, priced at $44.9 million each, to be delivered starting in 2028. These vessels are designed for high efficiency and versatility, allowing Ardmore to carry a wider range of liquid cargoes, from oil products to high-spec chemicals.

The company can do this because it maintains one of the cleanest balance sheets in the sector, with a debt-to-equity ratio of just 0.17 and more than $280 million in available liquidity. This financial flexibility allows it to fund growth internally while protecting the high dividend.

Same industry, two very different companies

Both companies stand to benefit from the continued rise of oil prices. Of the two, Ardmore appears the better buy right now, as it is trading at less than 5 times forward earnings, while Occidental has a forward price-to-earnings ratio of less than 11.

Ardmore’s change in its dividend policy could lead to double-digit yields for its investors, and its low debt levels mean it can consistently increase its dividend.

Occidental, with its Berkshire backing, presents less risk as a blue chip stock, but the case for buying it really rests on continued high oil prices, as it would benefit more directly from them than Ardmore would.

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James Halley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.

2 Overlooked Oil Stocks to Buy Now Before They Soar was originally published by The Motley Fool