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With Buffett’s Backing, Can Chevron Stock Turn the Corner? | Personal Finance

Chevron (NYSE: CVX) is one of the largest super majors in the world and it’s the second-largest by market cap of the U.S. majors. With elevated oil prices, its stock could see considerable growth ahead. In this clip from “The Rank” on Motley Fool Live, recorded on April 25, Motley Fool contributor Jason Hall discusses where he ranked the energy stock and explains why it has potential to be a great performing stock.

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Jason Hall: First, the back story with Warren Buffett with energy investments. Really over the past 15 years, this has probably been, if you were to pick a sector, an area where Buffett’s just been notoriously bad, and a lot of it’s because of timing. He bought ConocoPhillips (NYSE: COP) when oil prices were in the triple digits. Lost billions there. He bought ExxonMobil (NYSE: XOM), and ExxonMobil is the one super major that its stock price still has not fully recovered over the past from its 10-year high. And then of course, he bought Chevron more recently. And one we’re going to talk about a little bit later, he bought Oxy (NYSE: OXY). It’s kind of a terrible time, right before the pandemic really kicked in. So what about ConocoPhillips, right? Or excuse me, Chevron. This is one of the largest super majors in the world. It’s the second-largest by market cap of the U.S. majors, second to ExxonMobil. And the stock is at an all-time high right now, and I ranked it, I believe, I ranked it No. 5, versus 10, 8, and 7 respectively for John, Zane, and Matt. And I’m going to tell you the reason that I ranked it this high for a very, very simple reason. And even as much as the stock is at an all-time high, it looks like it might be a little pricey compared to its trailing earnings, this business is about to gush, absolutely gush cash flow for the next five years. I really believe that we’re in an area of persistent high energy prices. We’re paying the price right now for the better part of ten years of under-investment in offshore resources and large oil and gas reserves. And it’s going to take a lot of money and a lot of time to really build up our ability to meet demand. And oil demand is on a decline, but I think it’s a very, very long-term decline. So, here’s the number. So, at $75 Brent, the company’s saying over the next five years, it can generate the better part of $200 billion in operating cash flow mostly from operating cash and then some asset sales and some other divestitures. At $50 Brent, it’s still pushing well over $100 billion in operating cash flow. Now, I’ve got a bunch of numbers I’m throwing at you here, so let me clean this up a little bit and just show you. This is the operating cash and free cash flow that it generated last year, right, in 2021. This is what the company is saying it can do at $75 Brent. I think we’re going to average $75 Brent or higher over the next five years. This is one of the most well-run energy companies in the world. Even with the stock price where it is at an all-time high, if the company can hit on this pretty modest forecast, I think this is going to be a great performing stock. I don’t think I’m interested in buying it, because I’m not a big fan of the super majors in terms of how I invest. I think of these 10 stocks, this one has better than average odds of being one of the best investments from today.

Jason Hall has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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