Chevron is a leader in the broad array of energy stocks. The Dow Jones component was outperforming most stocks in 2022, alongside an array of oil stocks. But recently, oil and gas stocks have pulled back as crude oil prices fall back below $80 a share. Still, the commodity remains well off lows which has only served to benefit their upstream business. And after reporting record profits in Q2, shares are forming a new base.
Should you consider adding this stock to your portfolio?
Currently, the stock market is in a correction, which means it's not an optimal time to be buying stocks but still very important to be identifying top contenders for your watchlist. Investors should seek out leading stocks in leading industry groups that are outperforming the market for when the market returns to a confirmed uptrend.
Chevron Technical Analysis
Chevron stock has formed a 182.50 buy point in a consolidation. The stock jumped over 13% the week of July 29 as shares retook the 50-day moving average. But in recent weeks, the stock has pulled back below this key moving average. CVX shares remain 23% away still from the entry.
While the relative strength line has come down a bit off highs amid the recent pullback, Chevron stock still maintains an very strong Relative Strength Rating of 93, which is above the minimum of 80 for growth stock contenders.
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 3,039 funds that owned the stock in the June-ended quarter. This was up from 2,850 funds in the quarter prior.
Chevron Stock No. 2 In Its Industry
According to IBD Stock Checkup, Chevron stock ranks No. 5 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, 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 July 29, Chevron reported Q2 revenue of $68.7 billion, representing an 83% increase, year over year. This beat analysts estimates and accelerated from the prior quarter's increase of 70%. Meanwhile, EPS jumped to $5.82 a share from $1.71 in the same quarter a year ago, showing an increase of 240%.
"Second quarter financial performance improved as we delivered a return on capital employed of 26%," CEO Mike Wirth said in a press release. "We more than doubled investment compared to last year to grow both traditional and new energy business lines."
Is Chevron Stock A Buy?
Chevron stock should not be purchased at this time. Once the market outlook has returned to an uptrend status and the stock has reclaimed its 50-day line, investors should then wait until the stock is above the proper buy point. Once in the 5% buy zone, then it could be considered a buy.
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