Should You Consider Chevron?

With shares of Chevron (NYSE:CVX) trading around $131, is CVX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Chevron engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. The company operates in two segments: upstream and downstream. The upstream segment is involved in the exploration, development, and production of crude oil and natural gas, while the downstream segment engages in refining crude oil into petroleum products. Through its segments, Chevron is able to provide a range of energy products and services to a wide variety of companies around the world. As economies and businesses expand, Chevron is poised to provide the energy products and services required to fuel growth around the world.

Among the best running oil and gas stocks, Chevron hit a 52-week high of $133.57 on Monday on higher-than-average volume. More than 9.2 million shares traded as of 3:06 p.m. Eastern that day, contrasting with the average volume of 5,757,290. Oil prices declined slightly on Monday, as Iraqi government troops regained control of western border crossings to Jordan and Syria.

T = Technicals on the Stock Chart Are Strong

Chevron stock has been moving higher over the last couple of quarters. However, the stock is currently pulling back after reaching all-time highs and may need time to consolidate. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Chevron is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Chevron options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Chevron options

17.46%

96%

94%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of Wednesday, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Chevron’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Chevron look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-25.79%

-30.54%

-4.46%

-27.3%

Revenue Growth (Y-O-Y)

-6.25%

-4.1%

0.79%

-8.3%

Earnings Reaction

-0.17%

-4.13%

-1.62%

-1.17%

Chevron has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Chevron’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Chevron stock done relative to its peers – BP (NYSE:BP), Royal Dutch Shell (NYSE:RDSA), and Exxon Mobil (NYSE:XOM) — and sector?

Chevron

BP

Royal Dutch Shell

Exxon Mobil

Sector

Year-to-Date Return

4.94%

8.04%

14.28%

0.77%

8%

Chevron has been an average performer, year-to-date.

Conclusion

Chevron is an oil and gas bellwether that provides essential energy products and services to consumers and companies worldwide. The company hit a 52-week high of $133.57 on Monday on higher-than-average volume. The stock has been moving higher over the last couple of quarters but is currently pulling back. Over the last four quarters, earnings and revenues have been decreasing. However, investors have been pleased with recent earnings announcements. Relative to its peers and sector, Chevron has been an average year-to-date performer. WAIT AND SEE what Chevron does this coming quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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