Chevron: A Great Play For The Long-Term Investor

Jun. 7.12 | About: Chevron Corporation (CVX)

In the learning to fish series, we provide investors with suggested guidelines for choosing a potential candidate and one candidate is selected as our play of choice. We provide reasons for this choice and in doing so hope to impart some understanding to those who are new to the field of investing. It is important that readers take the time to read and understand the selection process involved in coming up with these picks. This information can be obtained here - "Our suggested guidelines when searching for new investment ideas." Chevron Corp (NYSE:CVX) is an example of a company that meets with all the suggested requirements.

Reasons to be bullish on Chevron:

  • A decent quick and current ratio of 1.2 and 1.6 respectively
  • A five year ROE average of 21%
  • An excellent payout ratio of 23%
  • A great retention ratio of 77%
  • A decent yield of 3.7%
  • A good 5 year dividend growth rate of 7.7%
  • An excellent long term debt to equity ratio of 0.07
  • A good free cash flow yield of 6.05%
  • Profit margins of 11%
  • A very strong levered free cash flow of $11.2 billion
  • Good institutional support. Percentage held by institutions is 64%
  • Net income surged from $10.4 billion in 2009 to $26.8 billion in 2011
  • Cash flow per share increased from $10.86 in 2009 to $19.99 in 2011
  • Annual EPS before NRI increased from $8.63 in 2007 to $13.44 in 2011
  • $100K invested for 10 years would have grown to $350K. If the dividends were reinvested the rate of return would have been higher.

Click to enlarge

Click to enlarge

Click to enlarge

Suggested strategy

If you are bullish on the stock consider selling puts at strikes you would not mind owning the stock at. If the stock trades below the strike, the shares will be assigned to you. Your final cost will be the strike price minus the premium you were paid. If the shares are not assigned to your account, you get to keep the premium, and you can repeat the process all over again. For example, you could sell the Dec 95 puts, which are currently trading in the 6.10-6.25 ranges. Alternatively, if you wish to purchase the stock outright, consider waiting for it to retest its recent lows before jumping in.

Company: Chevron Corp

Growth

  1. Net Income ($mil) 12/2011 = 26895
  2. Net Income ($mil) 12/2010 = 19024
  3. Net Income ($mil) 12/2009 = 10483
  4. EBITDA ($mil) 12/2011 = 60545
  5. EBITDA ($mil) 12/2010 = 45168
  6. EBITDA ($mil) 12/2009 = 30666
  7. Cash Flow ($/share) 12/2011 = 19.99
  8. Cash Flow ($/share) 12/2010 = 15.91
  9. Cash Flow ($/share) 12/2009 = 10.86
  10. Sales ($mil) 12/2011 = 253706
  11. Sales ($mil) 12/2010 = 204928
  12. Sales ($mil) 12/2009 = 171636
  13. Annual EPS before NRI 12/2007 = 8.63
  14. Annual EPS before NRI 12/2008 = 11.38
  15. Annual EPS before NRI 12/2009 = 4.84
  16. Annual EPS before NRI 12/2010 = 9.45
  17. Annual EPS before NRI 12/2011 = 13.44

Click to enlarge

Dividend history

  1. Dividend Yield = 3.7
  2. Dividend Yield 5 Year Average = 3.10
  3. Dividend 5 year Growth = 7.7

Dividend sustainability

  1. Payout Ratio = 0.23
  2. Payout Ratio 5 Year Average = 0.31

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 2.15
  2. 5 Year History EPS Growth = 6.98
  3. ROE 5 Year Average = 21.14
  4. Current Ratio = 1.60
  5. Current Ratio 5 Year Average = 1.42
  6. Quick Ratio = 1.2
  7. Interest Coverage Quarterly = N/A

For investors looking for other ideas detailed data has been provided two additional companies. Our latest article could also prove to be a source of some new ideas: Total SA: Supercharge Your Returns And Potentially lower your entry cost.

Company: Leggett & Platt (NYSE:LEG)

Basic Key ratios

  1. Relative Strength 52 weeks = 41
  2. Cash Flow 5 -year Average = 2.17

Growth

  1. Net Income ($mil) 12/2011 = 153
  2. Net Income ($mil) 12/2010 = 177
  3. Net Income ($mil) 12/2009 = 112
  4. EBITDA ($mil) 12/2011 = 361
  5. EBITDA ($mil) 12/2010 = 416
  6. EBITDA ($mil) 12/2009 = 369
  7. Cash Flow ($/share) 12/2011 = 2.02
  8. Cash Flow ($/share) 12/2010 = 2.05
  9. Cash Flow ($/share) 12/2009 = 1.78
  10. Sales ($mil) 12/2011 = 3636
  11. Sales ($mil) 12/2010 = 3359
  12. Sales ($mil) 12/2009 = 3055
  13. Annual EPS before NRI 12/2007 = 1.18
  14. Annual EPS before NRI 12/2008 = 0.88
  15. Annual EPS before NRI 12/2009 = 0.86
  16. Annual EPS before NRI 12/2010 = 1.16
  17. Annual EPS before NRI 12/2011 = 1.12

Click to enlarge

Dividend history

  1. Dividend Yield = 5.7
  2. Dividend Yield 5 Year Average = 5.4
  3. Dividend 5 year = 10.13

Dividend sustainability

  1. Payout Ratio = 1.07
  2. Payout Ratio 5 Year Average = 1.01

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 15
  2. 5 Year History EPS Growth = 0.44
  3. ROE 5 Year Average = 9.97
  4. Current Ratio = 2.20
  5. Current Ratio 5 Year Average = 2.35
  6. Quick Ratio = 1.30
  7. Cash Ratio = 0.48
  8. Interest Coverage Quarterly = 9.56

Company: Emerson Electric Company (NYSE:EMR)

Basic Key ratios

  1. Relative Strength 52 weeks = 52
  2. Cash Flow 5 -year Average = 3.64

Growth

  1. Net Income ($mil) 12/2011 = 2480
  2. Net Income ($mil) 12/2010 = 2164
  3. Net Income ($mil) 12/2009 = 1724
  4. EBITDA ($mil) 12/2011 = 4721
  5. EBITDA ($mil) 12/2010 = 3956
  6. EBITDA ($mil) 12/2009 = 3397
  7. Cash Flow ($/share) 12/2011 = 4.46
  8. Cash Flow ($/share) 12/2010 = 3.8
  9. Cash Flow ($/share) 12/2009 = 3.26
  10. Sales ($mil) 12/2011 = 24222
  11. Sales ($mil) 12/2010 = 21039
  12. Sales ($mil) 12/2009 = 20915
  13. Annual EPS before NRI 12/2007 = 2.66
  14. Annual EPS before NRI 12/2008 = 3.11
  15. Annual EPS before NRI 12/2009 = 2.27
  16. Annual EPS before NRI 12/2010 = 2.69
  17. Annual EPS before NRI 12/2011 = 3.24

Click to enlarge

Dividend history

  1. Dividend Yield = 3.6
  2. Dividend Yield 5 Year Average = 2.88
  3. Dividend 5 year Growth = 6.88

Dividend sustainability

  1. Payout Ratio = 0.47
  2. Payout Ratio 5 Year Average = 0.47

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 11.16
  2. 5 Year History EPS Growth = 2.01
  3. ROE 5 Year Average = 23.37
  4. Current Ratio = 1.38
  5. Current Ratio 5 Year Average = 1.43
  6. Quick Ratio = 1.12
  7. Interest Coverage Quarterly = 15.03

Conclusion

Long-term investors can use strong pullbacks to open up positions in stocks they would not mind owning for the long haul. A great way to get into a stock at a price of your choosing is to sell puts at strikes you would not mind owning the stock at.

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies - let the buyer beware.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: EPS and Price vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Earnings estimate and growth rates sourced from dailyfinance.com. Ycharts data source from Ycharts.com.