Chevron (CVX) has been up and down with most of the big global oil companies this year, but I really like how it has positioned itself compared to competitors. If I had to think about investing in a large oil company right now, I might choose Chevron and there are a couple reasons for this I'd like to share.
A Reliable Dividend Stock
Investment rates for those looking to build for retirement have been dismal for years now. Where does one put money? Five year Treasuries are under 1% and 10-years under 2%. How can one live on such small returns? Herein lays the problem. Bills-- oil, electric, drugs, gas, food, automobile maintenance-- all these bills keep coming and continue to increase, yet investment returns are not keeping up. It is hard for income investors who are counting on retirement to picture having to dig into principle. "Principle" is the safety net they need to bring interest returns off of. This is the last thing they want to do. The turn to dividend is nothing new, but I like re-mentioning Chevron as an age old reliable investment. It has a 3.5% dividend but also a nice long history of good dividend performance. It has increased its dividend for 20 straight years. The last five years, its dividend growth rate has been about 10%.
Western Australia Gas Project more Expensive
The liquid natural gas project in Western Australia at Chevron's Gorgon sight is going to rise 40% to $52 billion. Normally this is bad news, but it is lower than initial estimates. Even though this increase was announced, it may not be as bad as it seems because Gorgon LNG deals are benchmarked off of Tapis Crude (Malaysian crude as benchmark pricing in Singapore). This crude is up over 80% in the same time frame. For this reason the news should not hit the company too bad; it was expected.
It has Money!
Dahlman Rose published a research report on Chevron and upgraded the company from hold to buy with a $120 price target. One reason for Dahlman's healthy outlook would be Chevron's eye popping cash reserves. For seven consecutive quarters, the company has experienced a decline in production, while competitors like Exxon (XOM) or Dutch Shell have not slipped as bad, yet Chevron boasts an extremely healthy cash reserve. Comparing the three, look at these cash reserves:
Chevron: $21 billion
Exxon: $13.1 billion
Shell: $18.8 billion
With strong reserves like this, Chevron is well-positioned to weather low commodity prices as well as speculation the company might make a purchase. And there are many options for Chevron to pursue. Cobalt International Energy Inc. (CIE), a company worth about $11.6 billion, announced Friday that it had made a "significant" discovery at a well in the Gulf of Mexico in which they own a 60% interest. In addition, the company's projects off the coast of Angola have produced an estimated 1 billion barrels of crude.
Kosmos Energy Ltd. (KOS), valued at about $4.6 billion, has several well-placed assets in oil-rich zones off the coasts of Gabon, Angola, and Morocco, and is another potential candidate for a takeover attempt by Chevron.
I like the pattern for Chevron I am seeing. It is a simple up and down pattern like we see in many stocks. The key question I would like to ask now is whether it will continue up or is it going to retract now as it inches closer to its first major resistance level at 110? If I observe a few indicators, I see this last move up has put the RSI indicator in bullish territory, but it also looks like it has peaked. This does not mean it will move down now, but if it continues up, it may back up a bit first. The MACD, on the other hand, looks like it wants to continue to move up. And I believe this helps define where the stock may be headed. It still looks like it has momentum. It also looks like it is sliding up the top Bollinger Band. What does this mean? I could give argument for a move up as it has followed this pattern in its recent past. It could move sideways toward the middle band. It does not look bearish though.
With a mild bullish lean, solid dividends, and cash on hand, I like Chevron as a long-term investment right now.