JPMorgan Sends the Dow Tumbling, but Will Chevron and ExxonMobil Bring Stocks Positive Energy?

Bank earnings were one of the big factors leading to a second day of dramatic stock-market declines, but could energy stocks hold up the market? Find out here.

Apr 11, 2014 at 9:05PM

Friday's 143-point drop for the Dow Jones Industrials (DJINDICES:^DJI) added to anxiety levels among investors, with many watching closely for signs that the bull market might be coming to an end. Losses for the week that totaled 385 points still left the Dow far from levels that would indicate even the mildest of corrections, but many anxious market participants looked at results from JPMorgan Chase (NYSE:JPM) and projected forward to a glum first-quarter earnings season universally. Yet, today's gains in Chevron (NYSE:CVX), and only modest declines for ExxonMobil (NYSE:XOM), suggest that some investors are seeking refuge in the energy sector for protection from potential losses. Is that strategy likely to work?


Are energy stocks safer than bank stocks?
Looking at the earnings report this morning, problems at JPMorgan Chase were widespread and, although shareholders had expected weakness in areas like mortgage originations, net income at its consumer banking and corporate and investment banking divisions both fell by roughly a quarter from year-ago levels. Plunging returns on equity called into question the wide profit margins that have sustained overall market earnings growth in recent years, and if margin pressures start appearing in other areas of the stock market, then the negative impact on corporate earnings could exacerbate the pullback we've seen so far in the Dow Jones Industrials.

At first glance, Chevron and ExxonMobil might appear to share a common challenge with JPMorgan Chase and the rest of the banking industry: how to keep revenue up. Just as JPMorgan Chase's quarterly revenue fell 8.5% from the year-ago quarter, both Chevron and ExxonMobil have had great difficulty finding ways to grow production quickly enough to overcome the natural lifecycle decline of existing wells, and to offset what has been a relatively poor pricing environment for energy products. Deals like the one Chevron signed earlier this week to provide greater development in Argentina will definitely help, but Chevron has already said that it expects weaker results in the first quarter compared to the fourth quarter of 2013, and it will take constant vigilance for ExxonMobil and Chevron to sustain production levels.

Still, many see ExxonMobil and Chevron as being more defensively oriented stocks than JPMorgan Chase and its banking peers. Although their earnings valuations are similar, big energy stocks have an element of predictability in their revenue and earnings, with their size helping them avoid short-term shocks. By contrast, JPMorgan Chase is in the business of assuming risk, and its recent results call into question whether the bank will be able to find growth in an increasingly hostile regulatory environment.


Chevron solar project. Source: Chevron.

Finally, the energy industry remains in a state of expansion overall. Even if Chevron and ExxonMobil can't organically grow their businesses, smart acquisitions could go a long way toward adding production and sustaining their long-term prospects. At the same time, lucrative dividend yields and immense share buybacks reward shareholders dramatically -- and neither ExxonMobil nor Chevron has to get approval from the Federal Reserve just to boost a dividend or repurchase a share.

As 2008 showed, energy stocks aren't a panacea for a stock market plunge. But it's easy to understand why many investors have looked at Chevron and ExxonMobil as being relatively safe places to park money in stocks, and any positive influence they wield could help the Dow Jones Industrials limit its losses in a further correction.

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Dan Caplinger owns warrants on JPMorgan Chase. The Motley Fool recommends Chevron. The Motley Fool owns shares of JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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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