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Dennis McCain
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I am a dividend growth investor that seeks out companies with a long history of increases in revenue, earnings and dividends. I then enhance those dividends and increase my income through the use of a proactive option strategy. My goal is to create a stream of passive income that will provide me... More
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Dividends, Derivatives and a Camera
  • Chevron - When High Is Too High 0 comments
    Jun 25, 2014 10:52 AM | about stocks: CVX

    Most dividend growth investors never sell. They spend hours and hours scouring over fundamental data looking at valuations to figure out just the exact security to buy. And they do a pretty good job of that. But for most of them that's the end of the story. They buy and then they never sell. I think that's a mistake. Sometimes stocks get over valued and need to be let go.

    If a value investor researched a security and concluded that it's over valued and shouldn't be bought, why wouldn't he also conclude, if he owned the stock, that it was time to sell it and wait for it to become undervalued once again. And the only answer I can come up with is that an investor would lose the dividend if out of the stock. I easily counter that argument with the idea that a stock that is overvalued and about to fall to a more normal valuation will lose more than the value of the dividend when it falls. For those that say you haven't made or lost any money until you sell, they're living in a dream. Believe me, it's real money.

    Take Chevron (NYSE:CVX). Just looking at the historical P/E ratio it's obvious to me that it's on the high end of the valuation scale. It looks like it traversed between approximately 7 and 14 over the last few years and today it's P/E ratio is almost 13. It's obviously not the best time to buy, but is it the best time to hold? Not for me but it's something each investor needs to think about.

    (click to enlarge)

    On 6 January of this year I wrote an article for the site "Dividends, Derivatives and a Camera" titled "Big Oil" and another article for Seeking Alpha suggesting that "It's Time To Exit Exxon and Chevron Stock" and I was severely criticized initially. A month later people were backtracking after the stock had fallen from $123 to $107. From there it's moved back up and today CVX looks equally extended at $132 (see chart below). The price has moved up rather quickly, the RSI above 70 and falling, the MACD is beginning to roll over and head down, and the ADX is rolling over. None of the momentum indicators are pointing up and in reality they're all starting to point down.

    Now I'm not saying that CVX is about to tank because I don't have a crystal ball and I can't see into the future any better than anyone else can. What I am saying is that when things get overvalued and the charts look this way, stocks tend to be dead money at best, and at worst they'll cost you.

    The daily chart for Chevron.

    (click to enlarge)

    The weekly chart for Chevron.

    (click to enlarge)

    If you're thinking of buying this stock any time soon or if you're simply holding this stock for the dividend, this may be something to think about.

    Stocks: CVX
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