Investors in today's all-time high markets who are seeking a relatively stable equity investment opportunity with upside potential may consider investing their money in Chevron Corporation (NYSE:CVX). The California-headquartered company, founded in 1879, is a major player in both upstream and downstream oil & gas, and is engaged in petroleum, chemicals, mining, and energy activities globally.
Recently, the equity shares in CVX have seen some underperformance due to a confluence of factors, which I believe presents investors with a longer-term view a fantastic opportunity to buy shares. Among other things, crude oil data in recent months has been weak and the summer driving season is coming to an end, affecting the top line. As a result, analysts on the sell-side have changed their views, causing more uncertainty for institutional and retail investors who put faith in these analytical views to make their investment decisions.
Still, let's return to the fundamentals. As a component of both the Dow Jones Industrial Average (NYSEARCA:DIA) and S&P 500 (NYSEARCA:SPY) indices, this company is not going anywhere anytime soon. With a market cap well into the $200 billion range and top-line revenue of $217 billion, the company has tremendous market power. Income of just over $20 billion is funding the company's investments in exploration and production, dividend returns to shareholders, and debt with plenty left over. There is also a distinct floor from current trading levels in the $120/share range with book value per share just over $81. Importantly, CVX offers its equity shareholders 3.44% yield, offering income opportunities for yield-oriented investors which could be reinvested in CVX shares (either automatically or at the discretion of the owner) or in other assets. The most promising fundamental metrics to me, however, are the P/E ratio of 11.9 and the forward P/E of 11, along with the P/B of 1.5 and the P/S of 1.1. Downside risk is largely mitigated when these metrics are at current levels, and investors should take advantage of this immediately.
The company has also been investing a great deal of cash flow in its future, which is heartening for investors who believe current management are better-than-average capital allocators. There is significant upside from the returns on this investment, and there is also room for the company to more directly return capital to equity shareholders in the form of stock buybacks or increased dividends. Operations are also diversified globally across various sectors.
As with any equity investment, there is substantial potential downside risk to investing in CVX. Management's capital allocation ability could prove underwhelming, and global geopolitical and macroeconomic events could continue to affect the company's revenue streams and operations, causing short to medium-term uncertainty and share price dips. However, the same could be said for peers like ExxonMobil (NYSE:XOM), at one time the most profitable company in the world, and I believe CVX presents a slightly better investment opportunity in terms of the fundamentals - though both look undervalued from a relative market perspective.
Thus, CVX, by many metrics, is fundamentally undervalued today. The company offers a 3.4% yield and downside risk is mitigated largely by stable cash flows and diversified operations. I would recommend a long investment in the equity shares or a potential short put option play. If investors are bullish on the stock for the long term, which I certainly am, they could consider a buy and hold strategy for that investment horizon with dividend reinvestment activated through their brokerage account. Good luck!
Disclosure: The author is long CVX.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.