'Real Deal' Stocks: Volume 1 (Exxon Mobil And Chevron)

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 |  Includes: BP, CVX, PTR, XOM
by: Stan Stafford

Summary

"Real Deal" is an acronym I created to help measure stocks against eight different criteria such as revenue growth, earnings growth, returns on assets and equity, and long-term price returns.

Exxon Mobil and Chevron are two companies that pass the "Real Deal" criteria, while BP and PetroChina do not.

While I don't feel that BP and PetroChina should be avoided, I do feel that Exxon Mobil and Chevron are better positioned to provide higher returns to long-term investors.

Overview

In this article, I will be reviewing a set of stocks to determine if they are what I like to call "REAL DEAL" stocks. Real Deal stocks are stocks that I believe worth strong consideration as buys for long term investors. "Real Deal" is an acronym that refers to the following metrics:

  • R - Revenue Growth
  • E - Equity (more specifically, Return on Equity)
  • A - Assets (more specifically, Return on Assets)
  • L - Leverage (more specifically, Financial Leverage)
  • D - Dividend Growth
  • E - Earnings Growth
  • A - Advanced Metrics
  • L - Long-Term Price Returns

When reviewing whether or not a stock is a real deal stock, the stock has to pass criteria set forth for seven out of the eight metrics listed above. For this first volume, I will be looking at the following stocks from the oil and gas industry:

  • Exxon Mobil Corporation (NYSE:XOM)
  • Chevron Corporation (NYSE:CVX)
  • BP plc (NYSE:BP)
  • PetroChina Company Limited (NYSE:PTR)

Revenue Growth

In order to pass the revenue growth criteria of a Real Deal stock, the stock has to have averaged revenue growth of 7% or higher over the last five years.

Looking at the chart below, you can see that PetroChina has the highest revenue growth, while BP and Exxon both also averaged greater than 7% during this time period (12.48% and 8.22%, respectively). Chevron is the only company that doesn't meet this criteria, with average annual revenue growth of 6.67% during the past five years.

Click to enlarge

XOM Revenue (Annual) data by YCharts

Equity (Return on Equity)

In order to pass the equity criteria of a Real Deal Stock, the stock has to have averaged return on equity over 10% over the past five years, with no negative annual values during this time.

Looking at the chart below, you can see that each company with the exception of BP passes this criteria.

Click to enlarge

XOM Return On Equity (Annual) data by YCharts

Assets (Return on Assets)

In order to pass the assets criteria of a Real Deal stock, the stock has to have averaged return on assets over 5% over the past five years, with no negative annual values during this time.

Looking at the chart below, you can see that just like return on equity, BP is the only company that does not meet the return on assets criteria.

Click to enlarge

XOM Return On Assets (Annual) data by YCharts

Leverage (Financial Leverage)

In order to pass the leverage criteria of a Real Deal stock, the stock has to have had financial leverage of less than 1 over the past five years.

Looking at the chart below, you can see that all four companies pass the criteria for the financial leverage metric.

Click to enlarge

XOM Financial Leverage (Annual) data by YCharts

Dividend Growth

In order to pass the dividend growth criteria of a Real Deal stock, the stock has to have averaged annual dividend growth of 5% or higher over the past five years.

Looking at the chart below, you can see that only Exxon Mobil and Chevron pass the criteria for this metric.

Click to enlarge

XOM Dividends Paid (NYSE:TTM) data by YCharts

Earnings Growth

In order to pass the earnings growth criteria of a Real Deal stock, the stock has to have averaged earnings growth of 5% or higher over the past five years.

Looking at the chart below, you can see that PetroChina is the only company that does not pass the criteria for this metric.

Click to enlarge

XOM Normalized Basic EPS (Annual) data by YCharts

Advanced Metrics

For Advanced Metrics, I will be looking at two items: the value score and the fundamental score calculated by Ycharts. Details regarding these two scores can be found here and here. In order to pass this criteria, stocks need to have a fundamental score of 7 or higher and a value score of 5 or higher.

Looking at the chart below, you can see that all four companies pass the criteria for this metric, with each company scoring a 9 or a 10 in both categories.

Click to enlarge

XOM Fundamental Score data by YCharts

Long-Term Price Returns

In order to pass the long-term total price returns criteria of a Real Deal stock, the stock has to have beaten the S&P total return over the course of the past ten years.

Looking at the chart below, you can see that only BP does not pass the criteria for this metric.

Click to enlarge

XOM Total Return Price data by YCharts

Conclusion

Let's take a look at how each stock measures up.

R E A L D E A L
Exxon Mobil Pass Pass Pass Pass Pass Pass Pass Pass

Chevron

Fail Pass Pass Pass Pass Pass Pass Pass
BP Pass Fail Fail Pass Fail Pass Pass Fail
PetroChina Pass Pass Pass Pass Fail Fail Pass Pass
Click to enlarge


Looking at the table above, you can see that Exxon Mobil and Chevron are what I consider to be Real Deal stocks. Exxon Mobil passed each of the eight criteria and Chevron passed seven out of the eight.

BP performed the worst, failing four out of the eight criteria, while PetroChina failed two of the criteria. This doesn't mean that BP or PetroChina should be avoided, but in my opinion, Exxon Mobil and Chevron are positioned better to provide more sufficient long-term returns to investors with a long term buy and hold strategy.

Two things to keep in mind when looking at this article (or future volumes):

1. The "real deal" criteria is not a one-stop shop for stock buying. It should only be the first step in taking a comprehensive look at investment opportunities. As always, I suggest individual investors perform their own research before making any investment decisions.

2. The criteria I have set up for "real deal" stocks heavily favors dividend paying stocks, since non-dividend paying stocks will have to pass all other criteria in order to be considered a passing stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.