With long-term demand pressures from emerging markets and a recovering worldwide economy, investment in energy equities is an excellent short-term opportunity. Chevron (CVX) is the smallest of the supermajors in this field (a result of a 2001 merger between Texaco and Chevron). With a vertically integrated approach from production to retail marketing, Chevron’s key market is and has been the North American oil market. As with other energy companies, Chevron has short-term potential for production growth and strong cash flow, a perfect complement to a global shoring of demand.
I argue here for a buy recommendation on Chevron. The upside on Chevron, I believe, is around 30%, giving it the largest valuation potential among the supermajors. With its unique resource base and strong fundamentals, Chevron makes for a great investment. Additionally, with its recent moves in the Wheatstone and Gorgon LNG projects, Chevron will be making good on supplying gas, an initial gamble that has turned out to be for the best given the increased tapping of gas reserves.
Chevron is strongly undervalued. Unlike BP (BP), Chevron has no impending legal anxieties and unlike Exxon Mobil, Chevron has a much higher earnings potential. Chevron’s market capitalization is around $200 billion and it maintains a competitive forward P/E of 8.0. A reasonable consensus view puts a 12-month target price for Chevron at about $130. The long-term yield on Chevron stands to be around 3%, a figure largely contingent on global oil prices. To continue reading, click here.