Source: PaxForex Premium Analytics Portal, Fundamental Insight
Chevron is one of the largest oil and natural gas companies in the world, known for its conservative financial approach and a strong track record of rewarding shareholders with consistent dividend increases, even during periods of weak energy prices. If you're considering investing in the energy sector, Chevron is certainly worth a closer look. Although it has been priced lower in the past, now could still be a good time to invest.
Here’s what you should know.
Chevron's valuation fluctuates over time, as is common in the stock market. However, from a broader perspective within the energy sector, Chevron remains a solid company. To understand why, consider a few key points.
First, Chevron is an integrated energy company, meaning its operations span the entire sector. It is exposed to oil and natural gas production (upstream), energy transportation (midstream), refining, and chemicals (downstream). These different segments tend to perform differently depending on market conditions.
For example, the downstream segment often benefits from lower oil and gas prices, which can hurt the upstream business. Meanwhile, the midstream segment, with its pipelines, typically generates stable cash flows throughout various market cycles. This diversification helps Chevron navigate the volatility inherent in the energy sector.
Additionally, Chevron boasts one of the strongest balance sheets among its peers. With a debt-to-equity ratio of about 0.15, it is well-positioned financially. This low level of debt gives Chevron the flexibility to take on more leverage during industry downturns, allowing it to continue supporting its operations and dividends. Impressively, Chevron has increased its dividend for 37 consecutive years, despite the ups and downs in energy prices over that time.
If you're in the market for an energy stock, Chevron should definitely be on your radar. This isn't a recommendation tied to specific timing - Chevron is a solid company to keep on your energy stock shortlist year-round.
That being said, while Chevron isn't necessarily a bargain right now, it does appear to be reasonably priced. Due to the volatility in energy sector earnings, traditional valuation metrics aren't always the most reliable for Chevron. However, the company’s consistent dividend makes the dividend yield a useful indicator. When the yield is high, Chevron is likely undervalued; when it's low, the stock may be on the pricier side.
At present, Chevron’s dividend yield is around 4.6%, which is slightly above its 10-year average of 4.2%. This suggests the stock might be somewhat undervalued right now, making it a potential addition to your portfolio.
However, despite Chevron’s diversified portfolio of energy businesses, its revenues and profits are still largely influenced by oil and natural gas prices. When energy prices rise, so do Chevron's earnings, and when prices drop, the opposite happens. The best time to buy Chevron tends to be during periods of low energy prices, which often requires a contrarian mindset. In such downturns, Chevron’s dividend yield can climb to 10% or higher when the market is most concerned about energy prices.
That scenario isn't playing out at the moment, but with energy prices easing somewhat due to supply and demand factors, now might be a good time for long-term investors to consider Chevron. Just remember, the stock will likely take a hit when oil prices fall, but that could also be an opportunity to increase your position rather than sell in panic.
Chevron is worth buying - if you're doing it for the right reasons. If you're aiming to trade the fluctuations in energy prices, Chevron probably isn’t the stock for you. But for those looking for broad exposure to the energy sector and a reliable dividend throughout market cycles, Chevron is a strong choice. With the current above-average yield, it could be a good time to start building a position if you've been watching the stock.
As long as the price is below 147.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 140.43
- Take Profit 1: 135.00
- Take Profit 2: 130.00
Alternative scenario:
If the level of 147.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 147.00
- Take Profit 1: 152.60
- Take Profit 2: 157.00