Chevron (CVX) is a leader in the broad array of energy stocks that have turned in standout price performances so far this year. The Dow Jones stock was up more than 45% year to date through May 16 and traded near new highs in a market where most stocks have tumbled.
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Chevron and other oil and gas stocks have been a haven for investors amid the recent volatility. First-quarter earnings boosted by soaring oil and gasoline prices helped launch Chevron stock into a new high Monday but shares quickly receded. Should you consider adding this stock to your portfolio?
Currently, the stock market uptrend is under pressure, which means it’s not the best time to be buying stocks but still a good time for identifying top contenders for your watchlist. Investors should seek out leading stocks in leading industry groups that are outperforming the market. You might also consider buying small positions in certain stocks that look promising, in case the market decides to rally.
Chevron Technical Analysis
Chevron stock tried to break out above a 174.86 buy point from a flat base. Shares broke out above the buy point on May 16, but were turned away at this level. After briefly dipping into the 7% sell zone, the stock successfully held support at the 50-day line, reversed higher and is heading for the buy zone once again.
After a successful breakout last October, Chevron stock rallied to new highs. Shares have held above their 50-day moving average since the breakout and even while forming the current flat base, except for a few slips in the past few weeks.
Chevron stock still maintains an excellent Relative Strength Rating of 98, which is above the minimum of 80 for growth stock contenders. Ideally, its relative strength line should be at or near a new high when a stock breaks out. Chevron checks that box as well.
One more consideration for the stock is its current fund ownership. Chevron stock saw an uptick in mutual fund ownership for the most recent quarter, reaching 2,850 funds that owned the stock in the March-ended quarter. This was up from 2,774 funds in the quarter prior.
Chevron Stock No. 2 In Its Industry
According to IBD Stock Checkup, Chevron stock ranks No. 2 in terms of Composite Rating within the integrated oil and gas industry group.
Because of soaring oil prices, which rose in the first quarter to well over $100 a barrel from below $72 at the end of 2021, the U.S.’s largest oil firms, Chevron and Exxon Mobil (XOM), reported robust earnings for the quarter ended in March.
Oil and natural gas prices have continued to rise after the Russian invasion of Ukraine, and this has no doubt helped Chevron. The California-based company said in a recent investor day presentation that it’s increasing production in the Permian Basin. The Permian Basin is the largest U.S. production area, a giant shale oil field spanning parts of Texas and New Mexico.
Chevron’s unconventional production, which typically involves horizontal drilling and fracking, grew to a record 692,000 barrels of oil equivalent per day in the Permian Basin during the first quarter. The company raised 2022 output guidance for the area to between 700,000 and 750,000 barrels per day. This represents an increase of over 15% from 2021. The company is on track to raise the Permian Basin’s output to 1 million barrels a day by 2025.
However, Chevron is not seeking to ramp up overall production too much. Typically, when oil and gasoline prices climb, oil firms invest heavily in increasing production. But right now, Chevron is reaping higher profits without looking to flood the market with increased supply too quickly.
In a recent New York Times story, CEO Michael Wirth noted that Chevron’s hesitance to invest heavily in furthering output is due to the high level of uncertainty in the world right now. “One of the lessons of history is that just as the bad times don’t last forever, neither do the times when prices are strong.”
“It’s all a function of getting our machine running again. The last two years have been volatile and unpredictable,” Wirth said. He added that Chevron is “on a path to achieving higher returns.”
Chevron Earnings
Chevron is an integrated oil and gas firm, which means it takes part in multiple aspects of the value chain of the business. This includes the upstream (production), midstream (pipelines and storage) and downstream (refining and marketing) operations. Chevron divides its reporting into two main segments: upstream and downstream.
The upstream segment consists primarily of exploring for, developing and producing crude oil and natural gas. The company also rolls the product transport, storage and marketing aspects into its upstream segment. Chevron’s downstream segment consists primarily of refining of crude oil into petroleum products, as well as the manufacturing of renewable fuels.
On April 29, Chevron reported Q1 revenue of $54.4 billion, up from $32 billion in the same quarter in 2021. That represented a 70% increase, year over year. EPS jumped to $3.25 a share from 90 cents, an increase of 261%.
Earnings for U.S. upstream operations totaled $3.24 billion in first quarter, up from $941 million a year earlier. The international upstream operation earned $3.7 billion, compared with $1.41 billion a year ago. The upstream segment produced essentially all of the company’s earnings for the quarter.
Is Chevron Stock A Buy?
Chevron stock should not be purchased at this time. The market outlook has already returned to a correction after briefly beginning a new uptrend, underscoring the volatility of the current environment. Also important is the fact that Chevron stock was turned away at the buy point and fell back into its base.
Investors who are looking to buy shares could initiate a small-size position if the stock can hold above its proper entry, although it would be a risky trade. An optimal strategy to use would be to pyramid into a position, which would protect against oversize losses. Volatile markets can be unforgiving in this manner so it’s best to err on the side of caution.
Being just below the 5% buy zone, Chevron stock is currently in position for a potential breakout. Investors should wait for the stock to rise and stay above the 174.86 buy point. The stock’s robust earnings and RS line at new highs also support a bullish case. Be sure to check IBD stocklists and other IBD content to find the best stocks to buy or watch in the current market.
Follow Fox on Twitter at @IBD_RFox for more commentary on Chevron stock and the best stocks to buy and watch.
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Source: https://www.investors.com/research/chevron-stock-buy-now-breakout/?src=A00220&yptr=yahoo