Every Thursday we bring you “Best U.S. Stocks.” You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You will read about stocks making moves you should know about, from coverage in our newsletter on U.S. investing, Wall Street Stock Forecaster.
We feel the best way to invest in the cyclical oil and gas industry is through well-established producers whose high-quality operations give them plenty of cash flow to replenish their reserves and pay for share buybacks and dividends.
CHEVRON CORP. (New York symbol CVX; www.chevron.com) is the second-largest integrated oil company in the U.S. by revenue, after ExxonMobil (New York symbol XOM).
In the second quarter of 2014, Chevron produced 2.55 million barrels a day (67% oil, 33% natural gas), down 1.4% from 2.58 million barrels a year earlier.
Even so, earnings rose 5.6%, to $5.7 billion from $5.4 billion. Chevron spent $1.25 billion on share buybacks in the latest quarter, so its earnings per share rose at a faster rate of 7.6%, to $2.98 from $2.77.
Cash flow per share, which excludes gains on sales of less important properties, rose 3.6%, to $8.96 from $8.65. Revenue gained 1.0%, to $57.9 billion from $57.4 billion.
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Energy stocks: Chevron LNG projects face competition from hydraulic fracturing in China’s natural gas reserves
Chevron is spending over $34 billion on two major offshore gas projects: the Gorgon field off Australia’s northwest coast (47.3% owned by Chevron) and the nearby Wheatstone field (64.14% owned). Each project will also have a plant that converts the gas into liquefied natural gas (LNG) for shipment to customers in Asia.
Combined with other new projects, Chevron expects these operations to boost its daily output by 20% by 2017.
However, hydraulic fracturing could unlock huge gas reserves in China. Drilling is far behind the pace of the U.S. and Canada, but the extra gas could eventually hurt LNG prices and limit these new projects’ profitability. China’s new deal to import gas from Russia could also dampen LNG demand.
Still, these new projects have strong long-term potential, particularly if the pace of global economic growth improves and pushes up energy prices.
As well, the shares are attractively priced. They trade at 12.1 times the company’s projected 2014 earnings of $10.65 a share and at 7.1 times its likely cash flow of $18.20 a share. The $4.28 dividend yields 3.3%.
Chevron is a buy recommendation of Wall Street Stock Forecaster.
If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article or another stock or investment topic, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.
Last week our report on Best U.S. Stocks reported on a tech stock that’s temporarily without a CEO—and doing fine. You can read the article here.
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Every Thursday we bring you “Best U.S. Stocks.” You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You will read about stocks making moves you should know about, from coverage in our newsletter on U.S. investing, Wall Street Stock Forecaster.
