Strong Retail Sales Send Dow Up 1%; Can ExxonMobil and Chevron Power Stocks Higher?

The Dow recovered partially from last week's losses, and energy stocks played a key role. Find out why here.

Apr 14, 2014 at 9:05PM
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The Dow Jones Industrials (DJINDICES:^DJI) finished Monday on a positive note, regaining their highs of the day and closing up 146 points, or nearly 1%. The Dow moved higher initially after positive reports of retail-sales growth in the U.S. economy, and just when it appeared that the average might give up all of its gains in the final hour of trading, the Dow bounced back and jumped more than 100 points in 45 minutes to finish near its highs of the day. Contributing to the gains were ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), both of which rose more than 1% in showing the continued importance of oil and gas exploration and production to the economy as a whole.

Looking at the fundamentals
At their most basic level, ExxonMobil and Chevron profit when oil and natural gas prices rise. Today, oil futures markets cooperated, with May crude rising $0.31 per barrel to climb above the $104 level and contracts further in the future rising by even larger amounts. Natural gas, on the other hand, edged down $0.06 to $4.56, as winter weather finally starts to wind down and give way to what has traditionally been a weaker season for the clean-burning fuel.

Xom

But the energy revolution in the U.S. has had ripple effects around the world, and Chevron and ExxonMobil have found themselves at the center of the resulting boom. Obviously, neither of the two massive oil giants can have their needles move nearly as easily as a small exploration and production company like Goodrich Petroleum, whose shares soared 30% Monday after announcing a solid hit on its bet in the Tuscaloosa Marine Shale play in the Mississippi Delta region. But given just how widespread discoveries like that have been, both in the U.S. and around the world, it takes a company the size of Exxon or Chevron to take full advantage of the scope of the energy boom going on worldwide.

Cvx

Source: Chevron.

Skeptics point out that it will be next to impossible for ExxonMobil or Chevron to sustain significant production growth over the long run. In order to overcome the natural decline of existing wells, the two companies would have to make massive acquisitions at what would likely be increasingly expensive prices. In many ways, shareholders might be better off if Chevron and ExxonMobil admit the upper limit of their size and work on maximizing the value of their depreciating assets. That won't stop the two companies from working on potential growth initiatives like Chevron's solar projects, but it does mean that investors don't fear them as much as they would other, less steward-like companies.

With the broader stock market on somewhat shaky ground, though, ExxonMobil and Chevron have the virtue of stability and consistent income, with shareholder capital returned through healthy dividends and huge buybacks. For those who fear corporate management teams that could fritter away billions in free cash flow, both Chevron and ExxonMobil have the discipline to act prudently. That's more than enough for many frightened investors right now, and if the energy boom continues, it could also lead to further gains for the two energy giants and their share prices.

3 stock picks to ride America's energy bonanza
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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