Chevron Corp (NYSE:CVX) provides administrative, financial, management and technology support to U.S. and international subsidiaries that engage in fully integrated petroleum operations, chemicals operations, mining operations, and power and energy services. On August 1, 2014, the company reported second-quarter earnings of $2.98 per share, which beat the consensus of analysts' estimates by $0.31 and is scheduled to report earnings on October 31, 2014. In the past year, the company's stock is down 4.79% excluding dividends (down 1.37% including dividends) and is losing to the S&P 500, which has gained 10.07% in the same time frame. I am taking my IRA back from my financial advisor who has managed to not make as much money as the market has and I've decided that I want to look at Chevron as a potential investment. With all this in mind, I'd like to take a moment to evaluate the stock to see if right now is a good time to purchase shares for the basic materials sector of my IRA portfolio.
The company currently trades at a trailing 12-month P/E ratio of 10.69, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 10.38 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $10.79 per share and I'd consider the stock inexpensive until about $162. The 1-year PEG ratio (4.14), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 2.58%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.82% with a payout ratio of 41% of trailing 12-month earnings while sporting return on assets, equity and investment values of 7.9%, 13.4% and 7.9%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.82% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 27 years at a 5-year dividend growth rate of 9%.
Looking first at the relative strength index chart [RSI] at the top, I see the stock in oversold territory with a current value of 24.08. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars decreasing in height which tells me bearish momentum is in the name. As for the stock price itself ($112.03), I'm looking at $115.53 to act as resistance and $111.73 to act as support for a risk/reward ratio which plays out to be -0.27% to 3.12%.
I don't like the idea of investing in the oil industry right now, but if there is a name I'd consider investing in it is Chevron. For my IRA I'm considering whether or not to plow all my money into high-yielding AT&T (NYSE:T) or if I should diversify the IRA. Part of that diversification process would include investing in some of the other Dow Jones stocks, of which Chevron is included. Fundamentally, I believe the company to be inexpensively valued on next year's earnings estimates and expensive on earnings growth potential. Financially, the dividend is large but does have a lot of room to grow. On a technical basis the risk/reward ratio shows me there is more reward than risk right now. After doing the analysis, this is a stock I'd put on the radar if I decide to diversify the IRA portfolio, but probably won't be making a jump into the name right away.
Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: The author is long T.
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.