Traditional oil companies like Exxon Mobil Corp (XOM), Chevron Corp (CVX) and ConocoPhillips (COP) are popular because they offer decent dividends and consistent growth. For example, these three stocks returned 11.58%, 19.19% and 9.84%, respectively, since the first of the year, compared to just 1.24% for the market (SPY).
These characteristics make them popular with conservative investors especially. For example, Warren Buffett’s Berkshire Hathaway (BRK.A) has almost $2.2 billion invested in COP. Coincidentally, COP also offers a 3.70% dividend yield, the highest of the three stocks we are looking at. This is a common theme for Warren Buffett. The largest positions in his portfolio tend to follow this trend. Coca-Cola (KO), American Express (AXP) and Wells Fargo & Co (WFC), the first, second and third largest positions in the Berkshire Hathaway portfolio, each offer moderate dividends. CVX offers a 3% yield, while XOM offers a 2.3% yield.
We are going to take a closer look at Exxon Mobil Corp (XOM), Chevron Corp (CVX) and ConocoPhillips (COP) to see which offers the best opportunity for investors.
Earnings
Exxon just reported third quarter earnings of $2.13 a share. EPS is up 41% year-over-year. COP reported lower earnings on Tuesday, and CVX will report on Friday. Here we will compare their second-quarter earnings. XOM had revenue of $125.49B for Q2 2011, up from $92.49B the same quarter last year. It reported the largest earnings and the greatest increase but XOM is also the largest by market cap, weighing in at $386B. The second-largest of the companies we looked at is CVX. It has a market cap of $209B. It reported revenue of $68.95B for Q2 2011 compared to $53B Q2 2010. The smallest was COP at just $97B. Despite its smaller size, COP nearly matched CVX in Q2 2011 after pulling in $66.96B. Its Q2 2010 revenues were just $50.13B.
Valuation
Analysts estimate XOM will grow by 5.47% over the next five years, leaving its 2014 P/E at 8.45. CVX has the strongest growth estimate. It is expected to grow by 7.54% in the next five years, putting its P/E ratio to 6.84 in 2014. COP is expected to grow 7.02% in the next five years, resulting in a 7.47 P/E ratio. Based on these numbers, CVX offers the most growth at the lowest price.
Volatility
We used beta as a measure of risk. A beta of 1.0 means that the stock moves with the market. A lower beta tends to indicate that the stock moves more independently from the market. COP had the highest beta at 1.23, meaning that it is more volatile than the market. CVX is less volatile than the market at 0.76, while XOM was the least volatile at 0.46.
Hedge Fund Ownership
Stocks that are favored by hedge funds tend to outperform the market by a few percentage points on average. XOM was the most popular. Forty-seven of the hedge funds we track have positions in the company. CVX came in second at 41. COP had the least hedge fund interest at 34.
Conclusion
We like CVX best. It offers the most growth at the lowest price to earnings ratio later. It also offers a tidy dividend yield, has strong hedge fund interest and moves with the market but with slightly less volatility. While we would list CVX as a buy, we recommend that investors do their due diligence before adding it to their portfolios.
Disclosure: I am long COP, SPY.
