The Dow Jones Industrial Average dipped into bear market territory on Monday, closing down more than 20% from its recent peak. At last check, 26 of the 30 Dow stocks have lost ground this year, with many falling much more than the index.
One of the few stocks that have survived this year's sell-off in the Dow Jones might catch some investors by surprise. After delivering rather lackluster performance in recent years, oil giant Chevron (CVX 1.54%) is leading the Dow Jones this year with a more than 20% gain. Here's a closer look at why Chevron is thriving amid the Dow Jones bear market.
Capitalizing on crude prices
A big driver of Chevron's rise is oil prices. While oil prices have bounced around quite a bit this year, they're higher than when 2022 began. For example, Brent, the global oil benchmark price, was recently around $86 a barrel. While that's well below its peak of nearly $120 a barrel in June, it's still up about 15% for the year. The primary catalyst fueling oil prices is Russia's invasion of Ukraine and the impact that it's having on global energy supplies.
Chevron has feasted on higher oil prices this year. The oil company earned $17.9 billion during the first six months of the year, an eye-popping 300% increase from the prior year period. Meanwhile, its operating cash flow nearly doubled to $21.8 billion. That's giving it more money to allocate to create value for shareholders.
The oil giant has doubled its investments to grow its traditional and new energy businesses this year. It has increased its production in the high-margin Permian Basin by 15% while becoming one of the leading renewable fuel producers in the country, thanks to its over $3 billion acquisition of Renewable Energy Group. Chevron also increased its dividend for the 35th straight year (maintaining its Dividend Aristocrat status), increased the top-end of its share purchase guidance range to $15 billion, and paid off more debt.
The Warren Buffett effect
While higher oil prices and Chevron's improved operational performance were big factors fueling the rise in its stock price, they weren't the only catalysts. Another notable driver is that Chevron has caught the eye of renowned investor Warren Buffett.
Buffett's company, Berkshire Hathaway (BRK.A 1.18%) (BRK.B 1.30%), has been buying shares of Chevron hand over fist. Berkshire purchased 2.4 million more shares of Chevron in the second quarter. It now owns over 163.5 million shares worth about $23 billion. That's 8.4% of Chevron's outstanding shares. It's now Berkshire's third-largest holding at 7.3% of the stocks Buffett owns.
Berkshire's purchases are likely leading some investors to follow it into Chevron since it seems to have Buffett's stamp of approval. However, it's not the only oil stock Buffett has been buying. He also has built up a more than 20% stake in Occidental Petroleum (OXY 0.89%). Berkshire also received regulatory authority to boost its stake to 50%. That has some speculating that Berkshire might eventually acquire Occidental Petroleum.
Still, investors see Buffett as being very bullish on oil prices, given Berkshire's heavy purchases of Chevron and Occidental this year. While oil prices have cooled off from their initial surge following Russia's invasion of Ukraine on macroeconomic concerns, supplies remain tight while stockpiles are dwindling. B Any renewed supply concerns could send oil prices soaring again, likely driving up shares of Chevron and Occidental.
Still a potentially compelling Dow stock
Chevron has surprisingly survived the Dow Jones sell-off this year. It's benefiting from higher oil prices and Warren Buffett's purchases. While oil prices have cooled off, they could quickly snap back if there are any supply issues. In addition to that upside, Chevron also boasts a growing and high-yielding dividend (currently over 4%), a meaningful share repurchase program, and a top-notch balance sheet. Those features make it look like an attractive Dow stock to buy for those seeking exposure to the oil market, even with its outsized outperformance this year.
