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Occidental Petroleum (NYSE: OXY), the oil and gas giant more commonly known as Oxy, has been a major beneficiary of soaring oil prices this year. Oxy generates most of its revenue from its upstream exploration, drilling, and extraction business. When oil prices rise, Oxy and other upstream companies can grow their revenues much faster than their operating expenses.
To support its current capex and dividends, Oxy only needs WTI crude oil -- currently at $93 per barrel -- to remain above its $40-per-barrel breakeven price. Its free cash flow (FCF) also increases significantly as long as WTI stays above $60 per barrel. That's why Oxy's stock has rallied nearly 50% this year and beaten the S&P 500's (SNPINDEX: ^GSPC) 12% gain.
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Oxy might still seem like an attractive investment as the Iran war drags on and oil prices remain high. But as September (historically the worst month for stocks) starts, I'd rather own a steady midstream pipeline stock as my main energy play instead of Oxy's oil-driven shares. That stock is The Williams Companies (NYSE: WMB), which accounts for about 3.2% of my portfolio.