Tuesday, March 06, 2012

Chevron (CVX) 2012 Review


Chevron (CVX) is the world’s fourth largest oil company based on proven reserves. 

The company has grown its profits at a 15%+ annual rate over the last 10 years while earning a 15-20% return on equity. The dividend growth rate has not kept pace with profits; but the gap in the rate of increase has been closing. Earnings faltered in 2009 as a result of the global economic slowdown; however, CVX has returned to an attractive growth rate because:

(1) improving oil prices,

(2) it has sold most of its non core, high cost assets redeploying the proceeds in oil and gas exploration,

(3) one of the most promising development project pipeline in the industry has a number of very promising exploration projects that will grow its reserves. They include deep water production in the Gulf of Mexico as well as fields in western Australia, Angola, Nigeria and the Gulf of Thailand.

(4) CVX is re-starting its stock buy back program.

(5) increasing focus on alternative energy sources.

Negatives:

(1) exposure to fluctuating oil and gas prices,

(2) its large international operations subjects it to currency fluctuations and political risk,

(3) weak gasoline demand could be pressure on refining margins,

(4) increasing difficulty in finding promising development projects.

Chevron is rated A++ by Value Line, has a low 9% debt to equity ratio and its stock yields approximately 3.6%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2002
CVX 3.6% 4% 30% 10
IND 3.3 3 35 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
CVX 9% 18% 2 8% A++
IND 16 17 NA 7 NA

Chart

Note: CVX stock has made steady progress off its March 2009 low, quickly surpassing the down trend off its June 2008 high (red line) and the November 2008 trading high (green line). Long term the stock is in an up trend (straight blue lines). Intermediate term it is also in an up trend (purple lines). Short term it is in an up trend (brown line). The wiggly blue line is on balance volume. The Dividend Growth Portfolio owns a 2/3rds position in CVX. Shares would be Added at $94; the lower boundary of its Sell Half Range is $138.




http://finance.yahoo.com/q?s=CVX

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.