CHEVRON CORP. $129 - New York symbol CVX

CHEVRON CORP. $129 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.9 billion; Market cap: $245.1 billion; Price-to-sales ratio: 1.6; Dividend yield: 3.3%; TSINetwork Rating: Above Average; 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.

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.

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