August 10, 1995
Chevron (110 shares) NYSE: CHV
Phone: (415) 894-7700
Closing prices, August 10th, 1995: Bid $49 1/8, Ask $49 1/4
Trailing 12-month revenues: $30.3 billion
Trailing 12-month EPS: $2.60
Last quarter reported: June 1995 (FY: Dec)
Next quarter reported date: About October 21, 1995
Consensus EPS estimates for quarter: $0.70e vs. $0.47
Dividend yield: 4.06% (one of the highest among Dow stocks) Trade: Buying 110 shares, August 10th
OK. . . it's time for the Fools to drill for oil!
Tomorrow, we'll be scooping up some black gold in the form of shares in Chevron Corporation, one of the Dow heavyweights whose BUY light is currently on and blinking. With a yield over 4% at the present prices, Chevron qualifies for the O'Higgins strategy that we employ in a portion of our portfolio. So get ready to read these letters a lot over the next year: CHV.
DARN BIG THING. With over $30 billion in revenues, Chevron is actually only the fifth-largest oil company in the world. (Measured by market cap, though, it's the second largest of the three Dow petroleum companies, ahead of Texaco but well behind Exxon.) As a curio, please note that its market cap is actually right about in line with its sales: both are right about $30 billion.
As you'll read in our new Dow 30 area (in the Fool's School), Chevron is currently shifting its emphasis to concentrate on foreign production, while reshaping U.S. operations. One of the company's major focuses is now exploration in the former Soviet Union, where it signed an agreement in 1992 with the Republic of Kazakhstan to develop the Tenzig field.
BEATING THE DOW. Yes, we expect you'll read the phrase a fair amount tonight. . . it's pretty much plastered all over our area. And why shouldn't it be? Over the past 12 months, our Beating the Dow stocks returned us about 43%, more than doubling the S&P 500's 21% return. A 22-percentage-point outperformance is certainly better than normal, so it'll be hard to duplicate that feat this year; but doubling the market is about what one expects when using Beating the Dow.
Chevron, our Frisco-based full-service petroleum company, looks to be another participant in the proud tradition of the BTD strategy. The stock has been unremarkable so far in '95, up less than 20% when everything else seems way up above that. In fact, Chevron has been a Beating the Dow stock going back to the middle of last year, ever since it split two-for-one in 1994. That brought the share price low enough to be in line with other low-priced high-yielders, giving this Cinderella an invite to the BTD Ball.
STRATEGIC POSITIONING WITHIN PORTFOLIO. Whatever else happens over the next 12 months, we're counting on this stock to be a safe holding. In that regard, it's kind of like The Gap. If this incredible NASDAQ rally ever DOES fizzle out---or if it actually goes south---we expect out-of-favor stocks like Gap and Chevron to provide the ballast so well needed by a portfolio during a storm. Of course, we never make any pretense to know just WHERE the heck the market is going. . . perhaps our portfolio performances will all reach Kingdom Come by this time next year. In that case, maybe Gap and our Dow stocks will be laggards. But that's a risk we don't mind taking at all. We think a well-balanced Foolish portfolio should always include a few fatties, intentionally.
PEDIGREE. Chevron is an excellent company. . . has been ever since the turn of the century when it was called "Standard Oil Company of California," a John D. Rockefeller enterprise. The name of the game today among oil companies is "cost savings," which is a major goal at Chevron. Within the past year or so, the company has not been too successful, part of the reason this stock is among our overlooked Dow buys today. In fact, the company's failure to create enough savings was a major factor behind a slew of analyst downgrades that occurred in April, including a Salomon Brothers SELL rating (actually, Salomon would've done better to issue a SELL on its own stock, that day, since it's been outperformed by CHV).
Analysts downgrading a premier American blue chip? Ah. . . the very sort of situation we like to BUY into with our Dow stocks.
BUYING CHEVRON. This one's not exactly about to jump away from us. We'll probably put in a market order tomorrow morning. The purchase, as noted above, is 110 shares.
--David Gardner, August 10th, 1995