Credit Suisse came out with its top energy picks for 2014. Chevron (CVX) was the top and only major domestic integrated oil concern that received the designation for the New Year. Credit Suisse also has a $140 a share price target on the stock, which represents a ~15% return from the current stock price before dividends.
Among the key reasons for the selection was the stock's 3.4% dividend yield. The energy giant is also benefiting from the huge oil & gas boom currently occurring in North America. The investment bank speculates Chevron might make a major domestic acquisition to boost its exposure to this production boom. I think, Anadarko Petroleum (APC), which I profiled yesterday could fit that bill especially after stock's recent decline.
My current favorite large cap dividend paying energy concern continues to be ConocoPhillips (COP). However, income investors looking to add some exposure to the energy sector should also consider Chevron as well. It is the type of "Blue Chip" dividend payer that I think will do well in what should be a more subdued market, as far as returns, in 2014.
Margins should improve a bit over the coming years as 2014 will represent a peak year for spending on its massive Australian liquefied natural gas projects as they move closer to starting production. The company's cap ex budget should fall some $2B overall to $41B in the coming year.
As previously stated, the shares yield over 3% and just as importantly the company has more than doubled its payouts over the past eight years. I would expect this kind of consistent dividend growth to continue into the foreseeable future.
The stock is not expensive at ~10x forward earnings. It is even cheaper on a cash flow basis where it goes for 6x trailing operating cash flow. Chevron also has a very solid balance sheet and has been slowly divesting itself of refining assets which should lower the volatility of earnings over time.
Chevron has S&P's highest rating "Strong Buy", which also has a $145 a share price target on the stock. In addition, the company has done a credible job of increasing its share of production coming from oil & liquids which now stands at 2/3's of overall production.
For investors who see a muted market in 2014 after 2013's impressive rally and want a stable dividend payer with a solid valuation; Chevron could fit the bill. ACCUMULATE