Chevron Corp. $87 - New York symbol CVX

CHEVRON CORP. $87 (New York symbol CVX; Conservative Growth Portfolio, Resources sector; Shares outstanding: 2.1 billion; Market cap: $182.7 billion; WSSF Rating: Above average) is the secondlargest integrated oil company in the United States after ExxonMobil. Operations include refineries, pipelines and 25,800 gas stations under the Chevron, Texaco and Caltex banners. In the past few years, Chevron has used acquisitions to offset declining production. It’s also facing rising operating costs as it develops methods to extract oil and gas from deeper levels. But like research costs at a technology company, investments in new reserves should pay off for years to come. Chevron’s expertise has helped it win a new contract with China’s state-owned oil company to jointly develop a major gas field. This deposit is difficult to get at, and its high sulfur content will cost more to process. But this project has huge long-term potential in light of China’s growing energy needs. In the three months ended June 30, 2007, earnings rose 24.1%, to $5.4 billion from $4.35 billion a year earlier. The latest results included a $680 million pretax gain on the sale of its 12% stake in electricity producer Dynegy Inc., and a $160 million pre-tax loss on the early retirement of bonds. Per-share earnings rose 27.9%, to $2.52 from $1.97, due to fewer shares outstanding. Revenue grew 4.9%, to $56.1 billion from $53.5 billion, as higher energy prices helped offset a 1% drop in production. In August 2007, the company sold its 800 retail gas stations and related businesses in Belgium, Holland and Luxembourg for $516 million. The sale is part of Chevron’s long-term strategy to free up cash for new exploration and investments. The stock has moved down from its recent peak of $95. That’s because many U.S. refineries had to shut down for repairs in the past few months, but have now resumed normal production. The higher output has cut gas prices and Chevron’s refining profits. Chevron now trades at 11.1 times its forecast 2007 profit of $7.81 a share, and at 7.4 times its projected cash flow of $11.68 a share. The $2.32 dividend yields 2.7%. Chevron is a buy.