OThere are not even four months in the year. Yet already, Chevron (NYSE: CVX) the stock is up 46% year-to-date (YTD) – far more than any of the other 29 components of the Dow Jones Industrial Average (NYSEMKT: DJIA).
High oil and gas prices only tell part of Chevron’s success story. Here’s what separates Chevron from the rest oil and gas stocks and why it’s still a buy despite its stock price hovering around an all-time high.
Performance of Dow stocks in 2022
the DJIA has spent years underperforming the S&P500 and the Nasdaq Compound. And while the index is down 4.9% year-to-date, that’s better than the S&P 500 and Nasdaq Composite, which are down 6.7% and 12.8%, respectively.
Fifteen of the DJIA components – exactly half – are outperforming the index so far this year, while the other 15 are underperforming. Here is a breakdown by company.
Investors will quickly notice that the stocks that have carried the broader market in recent years, such as Apple, Microsoft, Salesforce, Nike and Home Depot, are all down year-to-date — as companies in the energy, industrials, materials and consumer base sectors are doing quite well.
A well-rounded oil and gas giant
Chevron has a reputation to have the best balance sheet of the integrated oil majorsespecially over the past five years or so, as its capital expenditures have dropped significantly.
Chevron has financial debt-to-equity and debt-to-capital ratios below ExxonMobil, BP, Shelland TotalEnergies — a sign that its capital structure is less dependent on debt than those of its peers.
Today’s Chevron is a poor oil major focused on achieving low cost of production it can therefore generate positive free cash flow even when oil is in the $40 a barrel range. This strategy was put to the test in 2020 when West Texas Intermediate crude oil averaged $39.17 per barrel for the year. Sure enough, Chevron lost billions. But he suffered less than his peers.
A strong performer in good times and bad
Chevron’s stock is a just a few percentage points off its all-time high as oil and gas prices show no sign of falling anytime soon. Russia is one of the largest oil and gas exporting countries in the world along with Saudi Arabia and the United States. But the war in Ukraine led many European countries and the United States to outright ban Russian energy imports or to quickly start looking for solutions to wean themselves off Russian imports, for example by building import terminals for liquefied natural gas in Europe.
If oil and gas prices remain high, Chevron will continue to make outsized profits. But even if prices go down, Chevron has a wide margin of error where he can still do incredibly well. This efficient portfolio is one of the reasons Chevron is a dividend aristocrat and can support its growing dividends and stock buybacks. (A Dividend Aristocrat is a component of the S&P 500 that has paid and increased its dividend for at least 25 consecutive years.)
Chevron’s upside potential and 3.4% dividend yield give it a boost for long-term investors who like a financially sound company and are also interested in generating passive income.
10 stocks we like better than Chevron
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*
They have just revealed what they believe to be the ten best stocks for investors to buy now…and Chevron was not one of them! That’s right – they think these 10 stocks are even better buys.
* Portfolio Advisor Returns as of April 7, 2022
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool Company. Daniel Foelber has the following options: long January 2024 calls $120 on JPMorgan Chase, long January 2024 calls $125 on Walt Disney, long January 2024 calls $145 on Walt Disney, long July 2022 calls $145 on Walt Disney, long June 2022 $170 short calls on Walt Disney, $150 short calls on January 2024 on Walt Disney, $150 short calls on July 2022 on Walt Disney, $135 short calls on June 2022 on Walt Disney and 175 short calls $ of June 2022 on Walt Disney. The Motley Fool owns and endorses Apple, Cisco Systems, Goldman Sachs, Home Depot, Intel, Microsoft, Nike, Salesforce.com, Visa and Walt Disney. The Motley Fool recommends 3M, Amgen, Johnson & Johnson, UnitedHealth Group, and Verizon Communications and recommends the following options: January 2023 Long Calls at $57.50 on Intel, January 2024 Long Calls at $145 on Walt Disney, Long Calls March 2023 $120 short calls on Apple, January 2023 short calls $57.50 on Intel, $155 January 2024 short calls on Walt Disney, and March 2023 short calls $130 on Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.