We have no idea where the term "Sell in May and go away" came from, but it sure sounds like pretty dumb advice to us if you are looking to invest in companies over the long term and enjoy the benefits of the beautiful thing that is reinvested dividends.
So, instead of giving advice on how to invest based on something as arbitrary as the month of the year, we asked a few of our energy contributors for some rock-solid companies to buy in May that could build wealth over time without needing to check up on any time soon.
Matt DiLallo: In my opinion, ConocoPhillips (COP 1.00%) is a buy-and-forget oil stock, whether it's bought in May or any other month of the year. I bought my first helping about a decade ago and have never sold one share. Instead, I top off my position every now and again.
One reason it's such a long-term holding for me is because it pays a very compelling dividend, which at the moment yields 4.5%. Not only has the company grown the payout over the years, but it remains very committed to the payout, with CEO Ryan Lance recently calling it the company's "top priority."
The reason the company's dividend is both generous and safe is because of the company's focus in recent years on growing its highest margin production. By focusing on growing its lowest cost oil and gas assets the company has been well positioned to still deliver solid cash flow during the current period of weaker commodity prices. Further, it has a strong balance sheet, which has allowed the company to fill any gaps in its cash flow so that it can maintain its dividend and its growth plan during the current oil market malaise.
Another thing that makes ConocoPhillips such a great stock to buy this May is the fact that it is just so cheap right now. As a result of the deep drop in oil prices over the past year the stock is now about 25% off its 52-week high, which is a deeper sell-off than either Exxon or Chevron. With this sell-off the company's valuation has become very compelling. While there are many ways to compare oil company valuations one that really shows just how cheap ConocoPhillips is relative to its peers is an enterprise-value-to-proved-reserves ratio. In this case the market is just valuing ConocoPhillips reserves at $11.33 per barrel of oil equivalent, or BOE, while that same ratio is $20.20 for Chevron (CVX 1.41%) and $15.72 for ExxonMobil (XOM 0.95%). (Sources: annual reports & my calculations)
To sum it up we have a compelling dividend, profit-focused growth plan, solid balance sheet, and a cheap valuation. That adds up to an energy stock we can buy in May and tuck it away till retirement.
Tyler Crowe: Is there any company that personifies the idea of invest it and forget it than Exxonmobil? Even though the company deals exclusively in volatile commodities, it has developed an impeccable record increasing its dividend on a regular basis for more than 32 years. On top of that, the company has also repurchased close to 40% of shares outstanding over the past 15 years, which the company is still doing at a rate of $1 billion worth per quarter even in this down market. Combine these two things, and you get a company that has throttled the S&P 500 on a total return basis.
XOM Total Return Price data by YCharts
Even with oil prices where they are today, Exxonmobil is still able to turn a decent profit thanks to its integrated model that captures higher profits from refining and marketing when oil is cheap and from exploration and production when prices are high. Some might point to declining returns in recent years as a sign of weakness in the company, but Exxonmobil has been investing heavily in some long-term projects that have tied up lots of unproductive capital. As these projects come online and the company scales back its capital expenditures, these slightly lower -- but still best in the industry -- returns on capital employed should tick back up.
If I'm looking to invest in an energy stock that I don't have to think about in May -- or Septembruary or Febtober for all I care -- then Exxonmobil is the stock for me.
Bob Ciura: Oil and gas giant Chevron is a great energy stock to buy in May and go away. Investors may be too scared to buy energy stocks because of the massive rout in oil prices from $100 per barrel at last year's peak to $45 at the 2015 low.
Chevron's revenue and profit collapsed 37% and 43%, respectively, last quarter versus the same period a year ago. Of course, that was clearly due to the oil crash. Chevron's exploration and production profits collapsed by 63% year over year. Fortunately, the refining business helped offset some of this, as downstream profits nearly doubled last quarter. Oil majors like Chevron typically see refining profits actually increase when oil prices decline quickly. This seems counterintuitive, but downstream operations tend to improve during oil declines because refining feedstock costs fall. Their balanced business models are why integrated majors like Chevron should still be held, even in difficult operating climates.
Plus, if and when oil does recover, Chevron will be a major beneficiary. Oil has actually enjoyed a stealth rally that nobody seems to appreciate over the last 6 weeks. West Texas Intermediate is back above $60, which means earnings reports in future quarters may be a lot better than last quarter's. In the meantime, Chevron rewards investors with a nearly 4% dividend yield, which at least pays you well to wait for the turnaround.
