With the rising tide in the crude oil market, integrated oil giant Chevron (NYSE:CVX) could be the stand-out leader. No, it’s not the most exciting enterprise in the field. However, with its vast footprint in the hydrocarbon space, robust financials, and solid dividend yield, it’s difficult to ignore. Plus, the reality is that consumers have little choice: they’ve got to pay up. For that, I am bullish on CVX stock.
Don't Miss our Black Friday Offers:
- Unlock your investing potential with TipRanks Premium - Now At 40% OFF!
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
CVX Stock Stands Poised for a Reversal
Upon a superficial review, Chevron may not immediately strike as a top-tier investment. Despite a year that has seen the security dip by 4%, a closer examination reveals a bullish trajectory ahead. Over the last 30 days, CVX stock has gained 3.6%.
This momentum is significantly attributed to heightened dynamics within the crude oil sector. An intriguing decision by Saudi Arabia and Russia to prolong voluntary oil output curtailments through year-end suggests potential market tightening. Notably, this move came in the wake of an existing rally in the oil domain. Furthermore, market experts have forecasted a probable supply constraint as we head into the year’s final quarter.
In response, global oil benchmarks showed vibrancy. Notably, Brent crude touched a price point above $90 a barrel last week, a milestone not witnessed since the prior November. This pricing landscape, although challenging for President Joe Biden, who faces a looming reelection, paints a lucrative picture for oil equities.
While investors with a penchant for risk might be lured toward upstream entities that emphasize exploration and production, a holistic approach might be more beneficial. In this regard, integrated oil firms, which operate comprehensively across the energy spectrum, present a compelling and stable proposition.
Chevron Benefits from a Captive Audience
While it might be easy to accuse oil giants like Chevron of exploiting a crisis, the dynamics of the situation have placed the company in a particularly favorable position.
Recently, Chevron’s CEO Mike Wirth, during an interview with Bloomberg, recognized that ongoing supply constraints have played a significant role in elevating oil prices. Interestingly, Wirth is of the opinion that the economy has the resilience to handle oil prices even if they surpass the $100 per barrel mark.
This viewpoint, although somewhat controversial, does highlight a crucial reality: Chevron, much like other oil majors, essentially serves a captive audience. Regions with inadequate public transportation infrastructure, such as California, exemplify this. Residents are left with no choice but to bear the brunt of rising fuel prices, especially when commuting to work is imperative.
Moreover, with the gradual decline of remote work arrangements, the importance of physical commuting is making a comeback. Many corporations are fervently pushing their return-to-office (RTO) policies, expecting employees to be back at their desks. This move, in part, could be attributed to the significant layoffs during the pandemic, which may have instilled a sense of urgency and desperation among the remaining workforce.
In such a climate, resistance to RTO mandates could be futile, as companies might find alternative hires willing to adhere to the new norms. All of this circles back to the essential role that oil plays, underscoring Chevron’s enviable position in the current landscape.
Robust Financials Lend Support
Investors eyeing Chevron might initially balk at its valuation. Priced at 11.7x forward earnings, Chevron isn’t exactly a bargain buy compared to other names in its industry. Yet, beneath the surface, this premium holds a promise of stability and dependable passive income – attributes that can be gold in turbulent times.
Taking a brief trip back to 2020, Chevron faced a significant financial stumble. However, the company’s annual income has seen a robust rebound since. While the recent earnings report did hint at a notable decline in both revenue and earnings, the evolving dynamics in the oil sector, coupled with strategic production cuts by major oil entities, suggest brighter days ahead for the company’s financial health.
This scenario, while advantageous for Chevron, doesn’t reflect an equitable landscape across sectors. But the central narrative for potential Chevron investors is unmistakable: as oil prices rise and production tightens, household expenditures on fuel are set to rise.
This transition of funds towards Chevron strengthens the reliability of its 3.6% dividend yield. As household dollars flow more into Chevron’s coffers, the dividend payout stands on more solid ground, enhancing the appeal of holding CVX stock in one’s portfolio.
Is CVX Stock a Buy, According to Analysts?
Turning to Wall Street, CVX stock has a Moderate Buy consensus rating based on nine Buys, four Holds, and zero Sell ratings. The average CVX stock price target is $192.92, implying 15.7% upside potential.
The Takeaway
Quite frankly, big oil giants don’t make for encouraging enterprises. And surely, plenty of bad blood exists between the fleeced customer and entities like Chevron. However, in a tricky market environment characterized by evolving dynamics and a resurgence in the necessity for physical commuting, it’s best to align with businesses that enjoy a captive audience. That’s CVX stock to a “T,” making it a powerfully-bullish idea.
