Chevron’s Advantages

Some readers have asked why Chevron Corp. (NYSE: CVX) is in the Conservative Portfolio, while other US-based integrated oil companies, notably ExxonMobil (NYSE: XOM) or ConocoPhillips (NYSE: COP), are not. The reason lies not in any shortcoming of these very solid companies (the latter of which was my employer for six years) but in Chevron’s excellent track record of late and its attractive growth prospects for the next decade.

Chevron has been on a winning streak in recent years, having increased its overall production at a higher rate than its peers even though it focuses more on oil than natural gas and thus did not participate as much in the US gas-production boom engendered by the fracking revolution. By the same token, it wasn’t harmed as much by the precipitous drop in natural gas prices during the same period — although full-year results for 2012 will show a drop in earnings and cash flow per share after a stellar 2011, in part due to the prolonged weakness in gas prices.

Chevron’s production increase didn’t come at the expense of quality or execution. It has long been the most profitable oil major. Looking forward, Chevron’s cash flows are expected to rise at a mid-to-high-single-digit rate over the next five years.

And Chevron’s future prospects look as bright as its recent past, thanks to holdings in some of the most exciting energy assets in the world — including three million acres in nonconventional North American fields. Chevron’s oil holdings include high-quality assets in the Permian Basin and in the deepwater Gulf of Mexico, West Africa, Australia, Iraq, Asia and Central America. The company’s massive Gorgon liquified natural-gas project in Australia, which will serve fast-growing markets in China, India and Southeast Asia, is on track to further energize sales and earnings growth starting in 2014.

Chevron continues to invest heavily to develop current assets and find new sources of oil and gas: it invest an estimated $36.7 billion in capital expenditures in 2013, up from $32.7 billion in 2012 and $26 billion in 2011.

Chevron has a strong balance sheet, with low debt to equity and nearly $20 billion in cash on its balance sheet — ample enough to fund continued high levels of capital expenditures while raising the dividend and buying back shares.

Despite these advantages, Chevron trades at a lower price/earnings ratio than rival US-based global oil companies ExxonMobil and ConocoPhillips and at a significantly lower price/cash flow ratio than ExxonMobil.


Price/Earnings Ratio*

Price/Cash Flow Ratio+





ExxonMobil (NYSE: XOM)



ConocoPhillips (NYSE: COP)



*Based on FY 2012 Estimate. +Based on FY 2012 Estimate. ^

Source:  Bloomberg, Credit Suisse

If you don’t yet own Chevron, we recommend looking for opportunities to accumulate shares as a foundation to a diversified energy portfolio. If you own a significant stake, add to it on dips well below our buy target. Our advice remains to Buy Chevron below 105.

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