The S&P 500 is down 20% in the last three months. Oil is down 30% in the last month and is currently priced at $22 a barrel. These are opportunities you can’t miss out on as an investor once in a lifetime opportunity of stocks that are extremely undervalued and that is why I purchased A bunch of shares in Chevron (CVX) and Occidental Petroleum (Oxy) Both of these companies have been around for a very long time and both offer strong dividends and both have taken a big hit from the oil crisis. Αn unprecedented environment for oil producers, with severe supply and demand, shocks occurring simultaneously. Especially, for the US, since shale requires a more costly process in order to produce petroleum products. Many energy companies have already announced plans to further slash spending and reduce shareholder distributions to preserve as much capital as possible for these uncertain times.
Chevron Corporation is an American multinational energy corporation. One of the successor companies of Standard Oil it is headquartered in San Ramon, California, and active in more than 180 countries. Out of all the energy companies I looked through it was between Exxon and Chevron as the two gas stocks I was going to pick, I ended up choosing CHEVRON and I think it is one of the safest investments in the energy sector and here’s why,
“In both 2018 and 2019, we were the only [oil major] that simultaneously raised its dividend, funded its capital program, increased production, and bought back shares, all while further paying down debt.” – CEO Michael Wirth
These strengths are especially important today with Brent crude oil sitting at $20 per barrel. That’s the lowest price since 2016 and well below the estimated “dividend breakeven” prices (where cash flow covers all spending and dividends) of the oil majors. Chevron looks to be well-positioned to weather the storm and cover its potential $7 billion annual deficit for at least a couple of years before facing higher stress. Chevron also plans to divest $2 billion of non-core assets annually as it continues high-grading its portfolio. If necessary, the company could likely increase this figure given the scale and diversification of its resource base. I am LONG chevron and I am excited to see how it performs in my portfolio as a long value play. Chevron has a great dividend at 7.17% with an annual payout of $5.16. I have an average price of $56 a share and already have a 25% return. I am excited about the gains this stock is gonna bring in the future and would highly recommend this stock for any long term investor.
Occidental Petroleum (OXY)
OXY is an American Petroleum Corporation that was founded in 1920. The company is engaged in the development of oil and gas in the United States, the Middle East, and Latin America. The company operates within three segments Oil, Gas and Chemicals. The oil segment develops and produces oil while the gas segment produces natural gas liquids and natural gas. The chemical segment manufactures chemicals, including chlorine, caustic soda, chlorinated organics, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates, and calcium chloride. The stock is currently at a 7-year low price and has a dividend of 27.22% with an annual dividend of $3.16! Warren Buffet has 10 billion dollars worth of this stock. Buffet stated that a bet on Oxy is by extension a bet on oil. There, he’s not overly concerned about a longer-term decline in demand in oil. And of course, Buffett is the very definition of a long-term investor.
This company is a great value stock and has a solid dividend. I already have a 15% return on the company and I am looking to add more shares to my portfolio if I see if take another hit. OXY has been around for over 100 years and I feel that it is just being oversold by the market which is making it undervalued.
On March 25th Occidental announced today a further reduction in 2020 capital spending to between $2.7 billion and $2.9 billion from its original 2020 guidance of $5.2 billion to $5.4 billion, a midpoint reduction of 47%. OXY is cutting expenses due to the crisis we are in with the virus and Russia and Saudi Arabia’s war on oil. I am going to avoid the noise of institutional investors and hold this stock for the long run. I see great value in this company and hope to update you guys in the near future.
OXY Chart by TradingView
Leave a Reply