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Chevron Corporation (CVX) Stock Is a Wash, But I Wouldn’t Sell It Short

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Investors have to be happy with the way Chevron Corporation (NYSE:CVX) has been trading over the past few months. Despite the volatility in oil prices, CVX stock has held all of its key support levels.

Chevron Corporation (CVX) Stock Is a Wash, But I Wouldn't Sell It Short
Chevron Corporation (CVX) Stock Is a Wash, But I Wouldn't Sell It Short

Source: swong95765 via Flickr (Modified)

In fact, shares weren’t even that volatile despite crude falling from $52 to $42 per barrel. On the downside though, CVX has shown little life despite oil rallying back to $48.

We can live with CVX stock not showing much life when oil is moving higher, so long as it’s a stud when oil is in decline. It’s one reason we put it on the list of “7 Energy Stocks to Buy to Survive an Oil Beating” almost two months ago.

The list also includes Enterprise Products Partners L.P. (NYSE:EPD), Phillips 66 (NYSE:PSX) and Occidental Petroleum Corporation (NYSE:OXY), among others. All of these stocks either held up during the oil selloff or, in some cases, rallied.

Chevron will report earnings on Friday before the open.

What to Expect

Analysts are looking for earnings of 87 cents per share on $32.67 billion in sales, up 148.6% and 11.6%, respectively. For the full-year, forecasts call for earnings of $3.74 per share on revenue of $133.71 billion. Both figures are up impressively year-over-year and further growth is expected in 2018 and beyond.

Admittedly, Chevron’s balance sheet could be cleaner and its valuation (21.5x forward earnings) isn’t necessarily cheap. But on the flip side, earnings growth is robust this year and a further 30% gain in 2018 (the consensus) somewhat justifies it. Additionally, CVX stock pays out a 4.1% dividend yield, somewhat easing balance sheet concerns.

Some investors may be wondering, “Do I really need an oil company with a heavy balance sheet and high valuation in my portfolio?”

The answer, plainly, is “no.” Nobody needs Chevron in their portfolio. But if investors believe in diversification and want some individual stock exposure to the energy sector, this is a good one to consider. With its $200 billion market cap, it’s one of the largest companies in the country. Management is continually refining its operations to make it more and more profitable, regardless of crude oil prices.

Trading CVX Stock

CVX stock, Chevron, CVX, Chevron stock
CVX stock, Chevron, CVX, Chevron stock

Click to Enlarge 

Source: Stockcharts.com

Looking at the charts, there’s a lot going on here. First, CVX stock has proven time and time again that $103 (purple line) really is its floor. Chevron has bounced from this level four times in four months. Below that, $101 (black line) will likely act as support should $103 eventually fail.

When it comes to downward trend lines, there are both pros and cons. The first big downtrend (blue line) that was acting as resistance from $116 to $105 finally gave way.

This was bullish and shares initially ran toward $109. On the downside, that got another downtrend (green line) going, which kept CVX stock moving lower.

So what now?

This downtrend line is pushing CVX to $103, where it finds support. The more a stock tests a level (either resistance or support) the more likely it is to break. That’s the bad news. The good news is that if CVX stock can get above this green line, it could be clear sailing for a while.

Perhaps the 200-day moving average will try to slow it down, but this metric has been of little importance over the past year. I’d worry more about $109, which has been resistance twice since April. Notably, this is where the stock also hit its downtrend lines. It’s unclear whether $109 or the downtrend is to blame for this resistance and we won’t know until CVX is back to that level.

The Bottom line on CVX Stock

Chevron is somewhat of a wash to me. Its dividend is attractive, its balance sheet is not. Its earnings growth is attractive, its valuation is not. The support between $101 and $103 is attractive, its downward trend line and potential resistance at $109 are not.

If I were long CVX stock, I would not sell it. I would look for positive commentary and solid earnings results to hopefully break the stock out higher.

In my view, the positives outweigh the negatives. With that said, it’s a dice roll taking up a new position before earnings. I certainly wouldn’t go short. Oil prices are rebounding, CVX stock is holding up and the notoriously negative Schlumberger Limited (NYSE:SLB) was actually positive on its conference call. So I would not sell Chevron short.

One could justify buying CVX ahead of earnings, but there’s nothing wrong with waiting until the results are out.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

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