Where Will Chevron Be in 1 Year?

Geopolitical conflict has driven oil prices higher in dramatic fashion. That is likely to lead to material revenue growth for oil companies. You can already see the impact on Wall Street, as the energy sector has been outperforming the broader market. Don’t get caught up in the excitement, buy a relatively boring industry stalwart like Chevron (CVX 1.60%) instead.

What does Chevron do?

Chevron operates in the upstream segment of the energy sector, producing oil and natural gas. This business will directly benefit from rising energy prices. However, it also operates in the midstream, which transports energy and produces fairly reliable cash flows. And it operates in the downstream segment, which uses oil and gas as inputs. Rising oil prices will hurt Chevron’s downstream business.

Image source: Getty Images.

Being vertically integrated provides stability to Chevron’s business over the long term, even though it will ultimately limit the benefits it derives from rising oil and gas prices. The company is basically built to withstand energy price volatility, because oil prices rise and fall over time.

Another long-term support for Chevron’s business is the company’s rock-solid balance sheet. Its debt-to-equity ratio is among the lowest in its peer group at roughly 0.25x. When oil prices do fall, the company has the wherewithal to add debt to support its business and dividend until energy prices recover. At that point, debt is reduced again.

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NYSE: CVX

Chevron

Today’s Change

(-1.60%) $-3.03

Current Price

$186.41

Key Data Points

Market Cap

$372B

Day’s Range

$185.63 - $189.16

52wk Range

$132.04 - $192.41

Volume

305

Avg Vol

11M

Gross Margin

14.66%

Dividend Yield

3.71%

In one year, Chevron will be just as desirable as it is today

Rising oil prices are great news for energy companies across the board. Investors are clearly rushing to buy energy companies that will benefit. The biggest gains over the next year are likely to be seen among pure-play energy producers, with companies like Chevron trailing a bit because of their broad diversification. Long-term investors should be happy to see that, because the near-term benefit of rising oil prices is likely to be temporary. At least that is the historical dynamic of the energy sector.

In one year, meanwhile, Chevron’s business will be just as balanced and attractive as it is today. And that will be true over the three- and five-year periods, too. Before you get caught up in the excitement around rising oil prices over the short term, make sure you consider what will happen when oil prices fall. That could happen sooner and more rapidly than you may expect.

The time to prepare is now, before falling prices arrive. Chevron is a strong choice for long-term investors looking at energy stocks over the next year because management is already looking 10 years ahead.