Trading sideways after pulling back last month, you may think the party’s over for shares in Occidental Petroleum (NYSE:OXY). Yet while it may seem as if OXY stock, following its comeback from late 2020 through mid 2022, will disappoint from here, take a look at the details. There’s much to suggest that will not be the case.

Yes, given it went from being on the brink, to reporting windfall earnings, it’ll likely not see another triple-digit percentage run, like it did during the aforementioned timeframe. It could, however, still deliver strong returns to your portfolio.

How? Undervalued based on its current price-to-earnings (P/E) multiple, it could move higher as it becomes clear oil and gas prices will stay elevated for the time being. In addition, the earnings produced by high energy prices will enable it to further improve its balance sheet. This too will help justify higher prices.

OXY Stock and the Pullback in Oil Stocks

Crude oil prices are down around 20% since June. Growing fears of a recession have the market worried about lower global demand for oil. This lessening of demand could outweigh possible future supply shock drivers. Namely, further efforts to retaliate economically against Russia for its invasion of Ukraine.

Even so, while oil may not hit a new multi-decade high, as you likely know full well whenever you fill up your car, energy prices remain well above where they were at the start of 2022. The U.S. Energy Information Administration (EIA) forecast continues to call for crude oil prices to fall to $89.75 per barrel next year, yet that’s still up compared to early 2022, and well above prices seen in 2020 and in much of 2021.

This of course bodes well for OXY stock. As I mentioned last month, high oil prices will help keep its earnings at or near what’s been recently reported. This may not just help sustain today’s valuation, it could help expand it, as it becomes more clear high energy prices are here to stay.

Furthermore, continued strong earnings mean something else that’s good news for Occidental Petroleum investors: more improvement of its fundamentals.

From Floundering to Thriving

Thanks to the recovery and boom in energy prices, this oil and gas company went from the brink of bankruptcy, to high profitability, in a very short time frame. This change in its fortunes paid off for investors who went against the grain, and bought OXY stock when things looked the most bleak.

Again, the types of moves Occidental shares have made in the past two years may not repeat themselves anytime soon. That said, even as it has gone from floundering to thriving, the company isn’t done enhancing shareholder value. Its putting the high earnings it’s generating today to work, to further clean up its balance sheet.

In past coverage, I’ve touched on Oxy’s debt reduction efforts. In 2021, it reduced its long-term debt by $6.4 billion. This year, it has reduced debt by another $8.1 billion so far. Lower debt means higher cash flow. It also means more cash available to buy back stock, and raise its dividend.

But beyond just that, a cleaner balance sheet makes Occidental a stronger, higher-quality oil and gas company. Going forward, this could also result in higher prices for shares.

Bottom Line on OXY Stock

Occidental Petroleum stock earns an “A” rating in my Portfolio Grader. As the market digests possible changes in oil demand, shares could continue to hold steady at current price levels.

Nevertheless, per the EIA, crude oil is likely to stay well above prior year levels through 2023. This means earnings should remain strong, and there should be enough cash flow to enable it to get its financial house in order.

Occidental is now consistently profitable. It has a stronger balance sheet than it did going into the pandemic. All of this stands to enable the stock to move higher. Remember, before it hit its multi-year rough patch, this stock traded for more than $85 per share. It has more runway than it seems on the surface.

If you believe high energy prices aren’t going away, OXY stock is still one of the best ways to make this wager.

On the date of publication, Louis Navellier had a long position in OXY. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.