Despite the market’s recent dip on fears of slowing global growth, equities on average remain overvalued. This five-year bull market is long in the tooth and vulnerable to a significant pullback, with “triggers” lurking everywhere.
Potential catalysts for a correction include Middle Eastern turmoil, spreading international terrorism, the specter of an Ebola pandemic, and a November midterm election in the United States that could hand the U.S. Senate to Republicans and thereby renew the government shutdown wars of the past.
Wall Street hates political uncertainty, and there seems to be plenty in the cards.
What’s a growth investor to do? If you still want to stay in the equities game but don’t want to shoulder undue risk, consider this large-cap “defensive growth” play: Chevron (CVX), the second-largest U.S.-based oil company. Chevron boasts far-sighted management, strong growth, reliable income, and a measure of safety.
Chevron Stock Firing on All Cylinders
For the second quarter, Chevron reported that net income rose to $5.67 billion, or $2.98 in earnings per share (EPS), up from $5.37 billion, or $2.77 in EPS, in the same period a year ago. This vertically integrated energy behemoth is generating steady annual revenue growth and cash flow from a variety of assets, including liquefied natural gas, deepwater platforms scattered around the world, prolific shale plays in North America, and downstream activities such as refining and retailing.
The company currently produces about 724 million barrels of oil equivalent per day (mboe/d) from its North American assets; 695 mboe/d from Asia-Pacific; 612 mboe/d from Africa and Latin America; and 579 mboe/d from Europe and Eurasia.
Chevron is a sure way to leverage the continuing boom in the U.S. energy patch. The advent of hydraulic fracturing, or “fracking,” combined with aggressive deepwater exploration in the Gulf of Mexico, has made America an energy powerhouse again.
Chevron stock is a chief beneficiary and driver of the continuing boom in U.S. energy production. The production of both U.S. crude oil and natural gas are on an upward trajectory. Even if economies and energy production slow down, Chevron is a diversified company with the proven capability of weathering cyclical ups and downs.
About 75% of Chevron’s oil production stems from outside the U.S. and is tied to higher international Brent North Sea Crude prices rather than the lower U.S. domestic price, West Texas Intermediate.
Chevron’s management is currently plowing significant investments into developing several oil and gas fields around the globe — notably in Venezuela and Mexico, whose socialist governments have liberalized energy policy to allow more foreign investment. In both oil-rich countries, Chevron has raced through the newly opened door. At the same time that it’s investing in the future, Chevron shoulders low debt and generates huge cash flow.
With a market cap of $217 billion, Chevron stock possesses vast reserves that it can tap for decades to come. With a trailing 12-month price-to-earnings (P/E) ratio of only 10.9, Chevron stock is also cheap relative to its peers in its segment of major integrated oil and gas, which trade at a P/E of 13.
This “super oil” offers superb growth and income, as well as a cushion against any sudden economic downturn. With a robust dividend yield of 3.7%, Chevron stock can energize the portfolios of growth investors and income investors alike.
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As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
