Chevron (CVX) is a favorable investment that is adequately priced in the market and shows potential of growth through its promising ventures and operations. Chevron is the 5th largest integrated energy company in the world with an assertive plan to become the leading organization in the LNG market worldwide. It also pays out adequate dividends to shareholders and it currently slightly undervalued for its potential in the market. This is best served as a long-term defensive investment.
The current stock price is hovering around $100 per share while the 52 week range has been from $86 to $112. The 50 day moving average and 200 day moving average have been around $103 and $105 respectively. The beta typically ranges from .7 to one as a relatively stable investment on the market. The return on equity has been decreasing slightly the past three quarters but it is still above the industry average. Its net and operating margins have been increasing the past three quarters and are above the industry average.
Both the quick and current ratio is above one and institutional ownership is above 60 percent; these two factors underscore the value of the investment in Chevron. The price is about seven times earnings, which is only slightly higher than the industry average. The important factors indicating the growth and value of Chevron are its current operations on the horizon.
There are at least three major ventures that separate Chevron from its competitors, like BP (BP), Exxon (XOM), ConocoPhillips (COP) and Shell (RDS.A). The combination of all three ventures makes it clear that Chevron is poised to be the leader in the oil and gas industry for the near future. Chevron is improving its position at the forefront of the LNG market in both Asia and Europe as well. Chevron will also be employing new environmentally friendly drilling techniques that will improve operations in almost every aspect or itself and competitors that follow suit as well.
Chevron will be using a new deep-water drillship within the next five years that will employ dual gradient drilling. Chevron will be using this new type of drilling on the Pacific Santa Ana ship in the Gulf of Mexico to look for oil. Chevron contracted with Pacific Drilling (PACD) in order to create a technology that can search for oil while keeping the waters safe and environmentally friendly as well. Chevron will be the only company using this type of drilling technique, and has the opportunity to be the leader in the industry by transitioning to this innovative technology. This ship will mitigate the risk of spills and transportation problems experienced with offshore drilling.
The current industry standard of single gradient drilling produces a significant amount of mud water with oil that is expensive to manage and dispose of. The dual gradient method makes it quicker to detect and adapt for changes in pressure while improving technical and environmental safety as well. If Chevron is able to use this advanced method to find oil in the gulf, it raise the stock price while changing the drilling industry forever.
The most promising venture on Chevron's docket is the growing demand for LNG in Japan. Japan has a thirty percent energy deficiency since abandoning its ties to nuclear power earlier this year. Chevron has contracted with Tohuku Electric Power to help make up the difference as demand for LNG has increased by 27 percent from March of 2011 to 2012.
The contract between the two is to supply 1 million metric tonnes of LNG to the major utility in Japan. Japan has entered into a twenty year agreement with Chevron, and competitors like ConocoPhillips as well. This is fine because the current demand outweighs the available supply and scale of operations for both Chevron and ConocoPhillips.
Chevron will supply the LNG from its Wheatstone location in Australia. The contract with Tohuku will be for 80 percent of the output from the $29 million Wheatstone project. Chevron has two projects in Australia that it will use to ship LNG to Japan within the next few years. The ability to supply the emerging markets in Asia with LNG from this nearby location will be paramount in establishing a leadership position in this growing energy industry.
Chevron also has plans for a LNG venture in Europe as well. Chevron has been rewarded with the winning bid to explore the 1.6 million acre Olesska shale gas block in western region of Ukraine. The bid license was approved by the Ukrainian Cabinet of Ministers and will improve Chevron's market share and earnings potential in Europe significantly. Chevron was able to beat Shell and Exxon Mobil in winning the bid.
The European Commission is allowing the acquisition of Angola LNG in a joint venture with BP in order to produce and sell LNG on the international market for re-gasification. This deal will make Chevron the leading supplier of LNG in the world. Combining this with the emerging markets in Asia and American will mean significant earnings for Chevron and its shareholders in the long run.
An adequate balance sheet along with a healthy plan for long-term international growth in a growing LNG market provides a promising outlook even for the most conservative investors. The appeal of substantial dividends that will continue to increase is also enticing. Chevron is also dedicated to maintaining its goodwill to reflect its brand in a positive notion around the world. Its recent claims were upheld in a litigation dispute with Ecuador over its role and coercion regarding the pollution of a local jungle.
Low prices in the natural gas market did hamper earnings and margins this past quarter, but Chevron keeps enough of a diversified portfolio to offset this loss. Even conservative acquisitions in the near future have the potential to increase Chevron's value in the market place for the long-term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.