American oil icon Chevron (NYSE:CVX) is unloved among the trading community, as is the energy sector generally. Yet, contrarian investors are supposed to love the unloved, right? If so, then CVX stock should be considered a must-own as the price is depressed.
Usually, I am quite wary of what analysts have to say about particular stocks. Oftentimes, they’re lagging indicators. In other words, the analysts typically won’t like a stock until the price has already gone up a lot.
Moreover, they oftentimes won’t recommend selling a stock until the share price has plunged. One bold big-bank analyst, however, is daring to go against the grain and recommend buying CVX stock.
Of course, you shouldn’t just buy a stock because one analyst recommends it. That being said, if the analyst has compelling reasons to own CVX stock, then perhaps it should have a place in your portfolio.
A Closer Look at CVX Stock
So, I’ve got good news and bad news concerning CVX stock. The good news is that the stock still offers a generous dividend payout. Specifically, CVX’s forward annual dividend yield is 7.18%.
Now for the bad news. Currently, CVX has trailing 12-month earnings per share of -$4.66. Undoubtedly, the onset of the novel coronavirus is a contributing factor to this negative number. Nevertheless, it’s a harsh reality that prospective investors must take into consideration.
Turning now to the share price, we can at least say that CVX stock has recovered somewhat from the 52-week low of $51.60. Still, the bulls have struggled to maintain upward momentum lately.
CVX shareholders will need to monitor the world’s oil supply-and-demand dynamic as it will have a strong influence on the share price. They should also brace for Chevron’s next earnings report, which is expected to take place on Nov. 6.
From ‘Neutral’ to ‘Buy’
Speaking of earnings reports, Chevron’s data release for the second quarter wasn’t particularly impressive. In that report, Chevron posted an adjusted loss of $1.59 per share, missing the Wall Street estimate of 92 cents per share.
On top of that, Chevron’s quarterly revenue declined by a whopping 55.5% to $16 billion. That’s markedly worse than the quarterly revenue of $22.1 billion that Wall Street had expected.
After that abysmal report, it’s understandable if analysts suggest that prospective CVX shareholders should run for the hills. Yet, there’s one prominent big-bank analyst who sees some light at the end of the proverbial tunnel for Chevron.
I’m referring to Bank of America Securities analyst Doug Leggate, who evidently sees the steep drop in CVX stock as a buying opportunity. Boldly, Leggate recently upgraded his rating on CVX from “neutral” to “buy.”
No Guts, No Glory
It takes guts to go against the grain and publicly recommend a stock that’s tanking. Leggate, however, has chosen to put his reputation on the line and set a price target on CVX stock of $96.
With that, Leggate commented that CVX stock “has moved back to levels where the risk/reward is attractive.” Thus, if your strategy is to buy low and sell high, then Leggate’s rationale should resonate with you.
Note, however, that Leggate has tempered his optimism with a dose of realism. He isn’t expecting the investing community to flip bullish on CVX stock until there’s a reduction in the oil inventory surplus.
I tend to concur with Leggate’s assessment of the situation. As you may recall, an unexpected build in crude-oil stockpiles earlier in September weighed heavily on petroleum prices.
Consequently, shareholders shouldn’t expect the CVX stock price to recover tomorrow or next week. It’s a waiting game for patient investors, but at least you can collect dividend payments along the way.
The Bottom Line
Leggate’s take on CVX stock is contrarian and gutsy. If you don’t mind waiting for petroleum market conditions to improve, you can start to build a position in CVX shares at the currently highly attractive valuation.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.