Oil Investing: Chevron Is On Sale…
Wow… what a week!
Just when you think the markets can’t get any wilder… they do.
On Tuesday, the Dow traded in a volatile 640-point range to end up over 400 points. But the strength was a bait and switch as the market plunged 519 points on Wednesday.
Amazingly, triple digit moves seem to be an every day occurrence for the Dow. The markets haven’t seen volatility like this since the credit crisis of 2008. A severe bout of investor panic has sent the Dow down 15% since July 22nd.
Clearly, a drop like that isn’t what investors want to see… unless you’re a bargain hunter.
That’s right, the big ‘shake-out’ of 2011 is exposing some extreme bargains. And if you’ve got a long-term investment horizon, now’s the time to spring into action.
To show you what I mean…
Companies providing essential energy products have seen their stocks drop dramatically over the past two weeks. But in that short amount of time, not much has changed at these companies besides their share price.
Take Chevron (CVX) for example…
Regardless of what’s going on in Europe or the status of the US’ credit rating, the world still needs vast amounts of energy. Food must get to our tables, kids need to get to school, and parents need to get to work.
And right now, oil is what makes all that happen.
So when a stock like CVX takes a big hit due to panic selling, long-term investors should be sitting up in their chairs.
The market’s recent downdraft took CVX to the cleaners. The stock is down 17% since July 22nd. While the plunge may be scary for some, prudent investors are licking their chops.
Why?
At this level, CVX pays a 3.4% dividend and has a trailing P/E of 8. That’s well below the average trailing P/E of 17 for the S&P 500.
But that’s not all…
This global oil giant has a balance sheet most oil companies can only dream about.
They’re sitting on over $13 billion in cash with debt to capitalization of less than 10%. For a $187 billion market cap oil company, debt levels that low are impressive.
And even though CVX is one of the largest oil companies in the world, they’re still growing their top and bottom lines at a blistering pace. In fact, revenues grew 30% year-over-year in the second quarter of 2011 to $68.9 billion.
These strong fundamentals make CVX one of top energy stocks in the market. And when the markets rebound, this stock will be at the top of many energy investors’ buy lists.
Everything about CVX is screaming buy…
But considering the volatility and uncertainty in the markets, it’s wise to plan your entry carefully. Whatever you do, don’t go ‘all in’ right now. Markets are currently trading on pure emotion and speculation.
Until cooler heads prevail, the best thing to do is to start nibbling at CVX.
After all, we still don’t know if all this panic selling is done yet. Uncertainty in Europe is ruling the markets right now. But the good news is, most of the rumors coming out of Europe are just that… rumors.
In tumultuous market times like we’re experiencing, I always follow Baron Rothschilds advice…
“The time to buy is when there’s blood in the streets, even if the blood is your own.”
Category: Commodities
