Big oil stocks are some of the worst things you can have in your portfolio when an oil price war breaks out. Whenever this happens, it sends oil prices crashing through the floor. But if you’re holding Chevron (NYSE:CVX) stock these days, that’s exactly the hand you’ve been dealt.
And it’s a losing hand, to be sure.
Chevron stock is down more than 35% year to date and there’s little indication that it will go north anytime soon. It is hemorrhaging money, with Chevron’s market cap falling from $207 billion just a month ago to $108 billion now.
The company had big plans this year for share buybacks and it sought to bring some added value to its long-suffering shareholders, but those plans are wishful fantasy now.
Let’s take a closer look at this Big Oil juggernaut, and some reasons why you should avoid having the stock in your portfolio.
Chevron at a Glance
These days, Chevron stock is trading near $60 per share — a far cry from the $133 it brought investors in January 2018. Falling oil prices contributed greatly to Chevron’s demise — a barrel of West Texas Intermediate crude cost a hefty $131 back in 2011, but has been falling steadily since.
In January, CVX reported 2019 Q4 earnings of $1.49 per share on revenue of $36.35 billion. Analysts had expected earnings of $1.45 and revenue of $38.64 billion.
Perhaps more worrisome, the company’s revenue was 14% lower than Q4 2018. Chevron also reported a net loss of $6.67 billion, which was much worse than the $3.72 in positive net income in the previous year.
Chevron trades at an extraordinarily high price-to-earnings ratio of 63X and a forward price-to-earnings ratio of 14.5. The trailing P/E is much higher than that of its major competitors Exxon Mobil (NYSE:XOM), EOG Resources (NYSE:EOG) and ConocoPhillips (NYSE:COP).
The one bright spot for Chevron stock is its inflated dividend of 6.2%. It’s inflated because the stock is undergoing so much downward pressure right now. The stock has an annualized payout of $5.16, and the company increased the dividend for 34-consecutive years.
The Problems Facing Chevron Stock
As recently as 2018 you could still buy oil for $70 per share — now prices are just over $30. We haven’t seen oil this cheap since the first quarter of 2002.
The price of oil plummeted earlier this month after failed negotiations between Russia and OPEC nations over how to handle lower global oil demand resulting from the outbreak of the coronavirus from China.
Saudi Arabia wanted to convince Moscow to cut production for a period of time until demand sapped away some of the global inventory. But those discussions fell apart, and the Saudis responded by announcing its state-owned oil company, Saudi Aramco, will start discounting oil to win over new buyers while at the same time increasing production by 10 million barrels a day.
All of a sudden we have a good old-fashioned price war, and U.S. oil companies were crushed. Chevron stock fell more than 13% in a day; BP (NYSE:BP) fell nearly 19% and Exxon dropped nearly 10%.
To make matters worse, all this happened just a few days after Chevron outlined an ambitious plan to invest as much as $22 billion a year in new oil and gas projects, while at the same time returning $75 billion to $80 billion back to investors through dividends and a share repurchasing plan.
That plan is in serious jeopardy now. Jefferies analyst Jason Gammel says buybacks by Big Oil companies “are now almost certainly off the table.” Goldman Sachs also suggests that Big Oil companies will have to go through a round of belt tightening.
The Bottom Line on Chevron
I have Chevron stock ranked as an “F” in my Portfolio Grader, and it’s pretty easy to see why. Chevron’s nice dividend doesn’t outweigh the company’s serious problems with sales and earnings growth and cash flow.
Look elsewhere for investing bargains — they aren’t to be found with Chevron.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
