When Donald Trump appointed Exxon Mobil Corporation (NYSE:XOM) CEO Rex Tillerson as his Secretary of State, many deemed it a conflict of interest and potentially an unfair advantage for Exxon. On Wall Street, at least, the move has been a bigger boon to Exxon’s biggest domestic rival, Chevron Corporation (NYSE:CVX).
OK, so that’s oversimplifying things. But it’s true that the Tillerson appointment has failed to move the needle for XOM — unlike most energy stocks, Exxon is barely up since the election. Because of his reported ties to Russia, the Tillerson appointment has been bad publicity for both the Trump administration and Exxon Mobil.
To avoid all the accompanying drama, it’s feasible that some energy investors have ditched their XOM stock in favor of Chevron stock.
Investors Flocking to CVX Stock
And investors have definitely been buying CVX. The stock is up 16% in the last three months, reaching its highest level in more than two years before pulling back slightly the last few weeks.
Mind you, Rex Tillerson’s appointment hasn’t been the only tailwind driving CVX stock. OPEC’s early December decision to cut oil production for the first time since 2008 has also helped. When it did, oil prices immediately jumped above $50 a barrel, and have stayed there. That’s especially good news for Chevron, which has actually lost money in three of the last four quarters as low oil prices have weighed on profits.
At one point, those losses fueled speculation that the Chevron dividend, one of the stock’s calling cards after more than three decades of annual growth, might be reduced.
Those fears quickly subsided after the company raised its dividend by a penny in November, marking a 32nd straight year of increases. Even after CVX stock’s run in the last three months, its dividend yield (3.7%) still exceeds Exxon’s (3.5%).
We won’t know the exact impact higher oil prices have had on Chevron’s bottom line until it reports earnings this Friday, Jan. 27. But analysts are expecting another positive quarter, and a big jump from last year. In fact, analysts anticipate the turnaround in Chevron’s bottom line to continue for quite some time: its earnings per share are expected to more than triple in 2017.
All of those numbers sound great. But sometimes, things are much simpler than that on Wall Street.
Perception is often what matters most. And right now, the perception of CVX on Wall Street is that of the largest and highest-profile U.S.-based energy stock NOT mired in an international scandal involving a former CEO. With an energy-friendly president now in office, oil prices being propped up by OPEC, great growth prospects and a dividend yield that’s approaching 4%, Chevron stock has become an attractive play on the energy-sector revival.
Buy CVX After Earnings
With both its 50- and 200-day moving averages trending upward, and CVX trading comfortably above those averages since Halloween, this is generally a good time to buy the stock, especially now that it has pulled back a bit from its December highs above $118.
However, you may want to hold off until after Friday’s earnings report, which could trigger a break in either direction after six weeks of consolidation.
But if the breakout in CVX is to the high side, you’ll want to pounce right away, and hold on as long as oil prices remain above $50 a barrel.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
