On Monday, shares of Chevron Corp. (NYSE:CVX) traded to a new all-time high of $128.80 per share. Despite this, the stock has been underperforming the broader market by about 2 percent this year. Investors have expressed bullishness toward the stock, but at the same time they are interested in higher beta growth stocks, particularly the smaller companies that are operating in the Eagle Ford and Bakken shale regions in Texas and in Montana and North Dakota.
However, with oil prices rising and uncertainty hitting the markets in the form of social unrest in Iraq, it might be time to consider a lower-risk play such as Chevron, despite the fact that it is trading at an all-time high.
But it is not trading as if it were at or near a major top. The stock trades with a modest valuation of 12.5 times trailing earnings and at 11.7 times 2014 earnings estimates. Analysts have an average price target of $132 per share on the stock, which is higher than the current price, but which is low considering the low price-to-earnings multiple and the general bullish outlook on the rest of the market. Chevron has historically been a solid investment.
First, it generates a lot of free cash flow. While this figure came down in 2012 and again in 2013, this is after a significant rise in 2009 and 2010. With the stock trading at such a low valuation, it seems that investors are expecting this negative trend to continue. But I don’t think it will. Going forward, as producing increases, the company will be growing its production, and it will begin to see the benefits of some of its larger investments made over the past few years.