The dip in the share price is a buying opportunity at Chevron.
An oil major yielding 4.2%
Lee Samaha (Chevron): Warren Buffett bought Chevron stock this year, even though the stock price was disappointing. The stock is slightly down over the last year, compared to the S&P 500’s 31% rise, and the price of oil is still above $80 a barrel.
One reason, which also explains why it’s underperformed peers like ExxonMobil, ConocoPhillips, and Occidental Petroleum so far this year, is the uncertainty around its intended $60 billion acquisition of Hess Petroleum. Oil majors have been looking to acquire energy assets as they generate bundles of cash from a relatively high price of oil. Meanwhile, the sector continues to fall out of favor among investors due to concerns about investing in fossil fuels as the world transitions to clean energy solutions.
That said, there’s still a hugely important role for oil in the global economy, and there’s upward pressure on the price given OPEC and OPEC+ production cuts. Meanwhile, whoever wins the next election is going to have to replenish the massive drawdown in the U.S. Strategic Petroleum Reserve carried out by the current administration in an attempt to lower gasoline prices.
If the oil bulls and Warren Buffett are correct, then Chevron, with or without Hess, is likely to generate bundles of cash flow in the future, and that’s excellent news for income-seeking investors.
