Source: PaxForex Premium Analytics Portal, Fundamental Insight
Chevron stock has rallied sharply this year. They have soared 50%, recently hitting an intraday high of $177.93 a share. That's an impressive result given the sell-off in the broad market, where the S&P 500 is down nearly 15% this year.
Even if Chevron stock has never been higher, that doesn't mean it can't keep rising. Here's a look at the bullish and bearish arguments for buying this oil company's stock right now.
Rising oil prices have been a major catalyst for Chevron this year. Crude oil has risen more than 50 percent since the beginning of the year, helped by rising demand amid pandemic restrictions and easing fears amid Russia's invasion of Ukraine.
Rising oil prices are providing Chevron with cash inflows. In the first quarter, the company's operating cash flow nearly doubled to $8.1 billion and free cash flow was $6.1 billion. That gives Chevron the means to grow its business - capital spending will increase by more than 50% this year - while returning more money to shareholders. In early 2022, Chevron increased its dividend for the 35th consecutive year and said it would buy back up to $10 billion worth of stock this year.
Chevron is investing to grow its oil and gas business while accelerating plans to expand its renewable fuels business. The company has agreed to acquire Renewable Energy Group and has signed an agreement with Bunge to form a joint venture to develop renewable fuel feedstocks that will facilitate future renewable fuel production. The company has also taken steps to develop carbon capture and hydrogen production business. These investments support Chevron's vision for low-carbon energy production in the future.
As long as oil prices remain high, Chevron stock could continue to rise in the near term. Meanwhile, long-term investments in low-carbon fuels could help Chevron continue to grow its cash flow in the future, giving its stock the strength to grow further.
The primary fuel for Chevron's stock price is oil. If oil cools, Chevron stock will likely follow. Several factors can affect the price of oil and Chevron stock.
The most important of these is demand. If high oil prices slow global economic growth, demand for gasoline, jet fuel, and diesel could decline. Meanwhile, if a new, more severe variant emerges that is resistant to treatments, vaccines, and prior infection, it could force people to stay home, which would affect demand for petroleum products.
Meanwhile, supplies are another catalyst for crude oil prices. If there is peace between Russia and Ukraine, it would go a long way toward calming global fears about the supply crisis that has pushed oil higher this year. In addition, if oil producers significantly increase their drilling activity, it would increase supply in the market, helping to offset Russian production and rising demand.
In addition to these near-term market fundamentals, the longer-term picture should also be considered. The global economy is gradually shifting away from fossil fuels in favor of cleaner alternatives. While Chevron is also moving in this direction, its transition may not be as rapid as the economy's transition. So its profits could fall sharply if oil demand declines in light of the accelerating transition to cleaner fuels.
It's hard to say definitively whether Chevron is worth buying because much depends on oil prices. If oil prices continue to rise, Chevron will have the fuel to continue its accelerated transition to a lower-carbon future, and to return some of its rising profits to investors. However, if oil prices fall, Chevron stock could fall. As such, investors should be convinced that oil will remain hot to buy Chevron stock at record highs.
As long as the price is above the level of 163.45, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 178.09
- Take Profit 1: 183.50
- Take Profit 2: 190.00
Alternative scenario:
If the level of 163.45 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 163.45
- Take Profit 1: 154.50
- Take Profit 2: 145.00
