Recent Buy – Chevron Corp (CVX)

I added to my position in Chevron Corp (CVX). Being an oil & gas giant and a component of Dow Jones Industrial Average, Chevron is an integral part of the economy. The behemoth has a market cap of $222B and the recent drop in oil prices has made the stock extremely attractively valued.

Chevron

Corporate Profile (from Yahoo! Finance)

Chevron Corporation, through its subsidiaries, is engaged in petroleum, chemicals, mining, power generation, and energy operations worldwide. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and processing, transportation, storage, and marketing of natural gas, as well as holds interest in a gas-to-liquids project. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil and refined products; transporting crude oil and refined products through pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing commodity petrochemicals and fuel and lubricant additives, as well as plastics for industrial uses. Chevron Corporation is also involved in coal and molybdenum mining operations; cash management and debt financing activities; insurance operations; real estate activities; and energy services, and alternative fuels and technology businesses. The company was formerly known as ChevronTexaco Corporation and changed its name to Chevron Corporation in 2005. Chevron Corporation was founded in 1879 and is headquartered in San Ramon, California.

Financials

Chevron’s revenue, earnings and free cash flow have all taken a hit with the recent downturn in the energy sector. Why the stock is currently trading at a P/E of 10.9 is pretty clear. I believe this this current hiccup is the perfect time for picking up shares in strong companies like Chevron.

Chevron Financials

Chevron Financials

Dividends

Chevron pays an annual dividend of $4.28 and at current stock price levels, yields 3.7%. This is higher than the average 5-yr dividend yield of 3.3% and shows that the current levels are well below average. Chevron is a dividend champion having raised its dividends for 27 years consecutively. The 1/3/5/10-year dividend growth rates (DGR) stand at 11.1/11.2/9.0/10.6%. With a payout ratio of 40%, there’s still plenty of room for dividend raises in the future.

Recent Buy Decision

  • Brand name: Chevron is a very strong brand name company to own for the long term. Any weakness in prices (such as currently experiencing) should be considered as buying opportunities.
  • Valuation: With P/E of 10.9, above average yields, well below Graham Number ($138) the stock is a bargain.
  • Circumstances: The recent downturn in energy prices are combination of strong US dollar, higher production and lack of geopolitical tensions. It will only take a change in one of those conditions to reverse that direction. Picking up high quality names during such periods is recommended.
  • LNG: Chevron is investing heavily in the LNG business, which I believe has a bright future ahead. CVX is expected to spend 26% of its capex over the next three years on LNG.

Risks

  • The continued depression of oil and energy prices could result in continued pressure on revenues and earnings.
  • A strong US dollar will continue downward pressure on both oil and stock price.

Summary of the stock

  • Symbol: CVX
  • Quote: $114.73
  • 52-week range: $109.27 – $135.10
  • P/E: 10.95
  • Forward P/E: 10.52
  • Debt-to-Equity: 0.15
  • Yield: 3.73
  • 5-yr DGR: 9.0%
  • 10-yr DGR: 10.6%
  • Book value: $80.88
  • Graham Number: $138.10
  • Chowder Rule: 12.6

Do you own Chevron? What are your thoughts on the company and the stock prices at these levels? Share your thoughts below.

Full Disclosure: Long CVX. My full list of holding is available here.

25 thoughts on “Recent Buy – Chevron Corp (CVX)

  1. Hi R2R
    Nice long term purchase! Price will go down, if oil and energy prices go down, but sooner or later the price will go up again. In bad cases, the low payout ratio will support the dividend growth.

    Have a nice weekend and Thanksgiving Day!
    DH

    • Thanks DH. CVX is a strong company and I have full faith in the management to keep it moving forward through the rough times.

      Thanks…looking forward to the long weekend 🙂 You have a great weekend yourself.
      regards
      R2R

    • Thats right, RBD…so many stocks on sale right now….its hard to pick. I went with CVX as my position was a low % of my total portfolio. Wish I had more cash to buy up more stocks.

      Thanks for stopping by. Have a great weekend
      R2R

    • COP is another stock I wish I owned…but oh well, you cant own them all. Likewise, I am caught without a lot of cash in my portfolio. There are so many blue chip names are great valuations currently.

      Best wishes
      R2R

  2. R2R,

    Great buy!

    I just wrote a quick article on Chevron and concluded that it’s about 10% undervalued right now. I honestly was very close to adding more myself, but energy is about 15% of my portfolio, and CVX is already one of my largest energy holdings. I’m already a bit heavy on that sector, so I cooled my jets a bit. But if I didn’t already have a lot tied up in energy and CVX I would definitely add here. 🙂

    My only concern will be where Brent settles. A lot of supermajors like CVX model $100 Brent in their forecasts to remain profitable, though capex has been coming down. Long-term, energy is going up.

    Best regards.

    • DM,
      I came to a similar conclusion….that CVX is undervalued by about 10% or so. My energy diversification is also quite high…but both energy and financial names are good valuation which are my two biggest sectors. Hopefully, other stocks will come down enough to warrant adding them.
      Yeah, it’ll be interesting to see where Brent settles. The fall in prices was long overdue though….but eventually it’ll turn around.

      Thanks for stopping by
      R2R

  3. Oil and many other commodities are definitely the word of the day. With its great slide in recent weeks every oil major and driller seems to be on sale. RIG, ESV, SDRL, CVX, XOM, BP, TOT and many more. Good timing to jump in but I’d be cautious a bit and watch where oil heads before adding more to this position. Thanks for sharing.

    • Wish I had more capital pick up some of those names. Energy is the second biggest sector in my portfolio…but the valuations are so good, its hard to resist.

      Thanks for stopping by and the comment
      R2R

  4. Excellent purchase! I want to add to my position in CVX right now too with the recent decline in price, I really hope it stays sideways from here so I get my chance. This investment should pay off handsomely long term.

    Best Wishes,
    Ryan

  5. I would love to add some CVX to my holdings. It is on my ticker list on my phone at all times. I just never get to the purchase. I might have to push it up the lost because it is at the bottom. Seems like the ones at the bottom do not get much of my attention lately. Good choice!

    Keep cranking,

    Robert the DividendDreamer

    • Its the forgotten names that have the best value. The blue chip names need to get out of sight of the mainstream media or have some negative publicity to find a bargain. With a Dow component thats hard, but the broad economic news sure is helping the valuation to become attractive.

      Happy investing

  6. Looks like we have some of the same investments as I too am a CVX shareholder! The price is even more attractive recently. I am not a stock expert by any means, but from what I’ve read and can see, this stock should be a good investment. While oil prices are down now, they’ll get back up before we know it. There is only so much “low hanging fruit” for them to refine, meanwhile global demand is still going to rise; China and India. All in all, I think this is a good buy.

    – HMB

    • Glad to have you as a fellow shareholder in this great company. The current valuation is a too good pass up and I have to admit that I pulled the trigger a bit too early, but oh well…thats the nature of the game. I have a full position in CVX now and will have to revisit after investing in other sectors to balance things out. You are right – oil can go back up anytime. However, what I like about CVX is also the fact that they are diversified into LNG sector and not just completely dependent on oil. I am more bullish on the natural gas subsector in the energy sector.

      Best wishes
      R2R

  7. With oil price crashing… picking up a Chevron pays you to wait and ride through the rough patch. I really like the Dividend growth and starting yield. I am long RDS.B but looking at CVX

    • Hi Sheldon,
      Yes, its a great time to add CVX. This purchase is from Oct and I would buy more here if I had the cash. RDS.B is a great company and Ive been keeping an eye on that too.

      Thanks for stopping by and the comment. Your blog is new to me. I’ll be sure to add it to my reading list.
      R2R

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