Chevron (CVX) is one of the largest oil companies in the world, and recently has been one of the better performing oil company stocks. Considering that economic growth is often tied to the growth of energy producing companies, now could be an excellent time to add Chevron to your portfolio. In addition to economic growth, increasing populations and industrialization of emerging markets are increasing the energy demand globally, resulting in significant boosts in profits for energy producers.
What about Natural Gas Prices?
In addition to global economic growth and increasing energy needs, the outlook for natural gas prices is also improving. Decreasing natural gas prices are hurting the bottom line of Chevron of late, but production is strong and the outlook for natural gas prices is becoming increasingly stronger. Natural gas prices have made a significant rebound since the bottom of less than $2. Demand for natural gas should be increasing, as more companies are converting their commercial trucks to natural gas. Two of the largest companies looking to increase their trucks that run on natural gas include Waste Management (WM) and UPS (UPS), which could be a great demand increase for the fuel.
What About Climate Change?
Chevron is well aware of the issues environmentalists pose against their company, and the increasingly changing sentiment against oil. Fortunately, Chevron is extremely diversified, and well versed in new clean energy techniques. Chevron is actively pursuing natural gas safely, as well as solar, biofuels, and others. In regards to the operations of the company themselves, Chevron is taking significant steps to reduce their effect on the planet, including reducing their Greenhouse Gases emissions, and by managing their energy efficiency for their various locations. Chevron is even using solar power in some of their oil production locations. It is however important to note that Chevron is facing some lawsuits in Ecuador due to environmental concerns, but it appears that this has already been factored into the price of the stock.
What about larger competitors like ExxonMobil (XOM)?
Chevron outperforms its competitors such as ExxonMobil in both price stability, earnings growth, and dividend yield. The third competitor, BP (BP) is still facing significant backlash from the spill years ago, despite paying billions in cleanup costs. BP's stock has been underperforming, leading the way for Chevron. Exxon is a slower growing equity, and pays a lower dividend yield than Chevron. Chevron also has a huge cash position, allowing for a stable dividend that has recently increased to $1 per share, which is over 3% yield. While many of Chevron's competitors find themselves with large amounts of debt, Chevron's balance sheet is very strong, which is extremely important for a commodity business.
Chevron also has the best profitability on a per barrel basis compared to its competitors, with a net income per barrel of $24 versus a net income per barrel of just $19.8 for ExxonMobil.
With the large possibilities of growth ahead for energy companies, Chevron's excellent Price to Earnings ratio (9.1), as well as a PEG ratio (Price to Earnings in relation to growth rate) of less than one (.52), makes it an excellent option for the moderate risk long term investor. Chevron also has an excellent 3.2% dividend yield, which is ideal for dividend seeking investors as well.
Considering Chevron has outperformed its largest competitor Exxon, and is planning on continuing the dividend as well as share buyback program, it's obvious that Chevron is a very investor friendly company. Chevron has stated that they plan on buying back 1.25 billion shares.
CNN Money offers a low price target of 120, median price target of 130, and a high price target of 148 over the next 12 months, with 13 buys, 3 outperform, and 9 holds.
Chevron CEO John Watson sounded very enthusiastic about what is ahead for Chevron, and if any of his predictions are right, Chevron should be a great stock to own.
Please note all ratios are based on a recent price of $126.