Chevron: A Prudent Holding in Uncertain Times

by

It was noted in December that Chevron appeared, even then, a relatively sound investment – a distinction made against the prevailing enthusiasm for ConocoPhillips. The market, as always, prefers a story, and ConocoPhillips had one. Chevron simply had assets, and a history of delivering what it promised. That distinction, it seems, has not diminished.

Both companies have performed well, naturally. Chevron is up roughly eighteen percent, ConocoPhillips fifteen. The broader market, the S&P 500, has barely stirred. This, however, is not evidence of brilliance, but merely a reflection of the enduring, if unglamorous, necessity of energy. To mistake prosperity born of necessity for ingenuity is a common error.

Chevron now trades near its all-time high. Some will see a bubble. A reasonable caution, perhaps, but one that ignores the underlying reality. The price is not dictated by optimism alone. Let us examine the facts.

A Decline in Earnings, Explained

Chevron’s upstream profits have indeed fallen, largely due to the predictable ebb and flow of oil prices. To be surprised by this is to misunderstand the business. What is noteworthy is that downstream profits have risen substantially, a result of refining margins. More importantly, the company has generated a significant increase in cash flow, allowing for continued capital expenditure, share buybacks, and, crucially, dividend payments.

Earnings per share are down, admittedly. But to fixate on this single metric is to miss the larger picture. The market, it often seems, is captivated by short-term fluctuations while ignoring the long-term fundamentals.

Loading widget...

The recent acquisition of Hess is a sensible move, expanding production and securing access to reserves in Guyana. The consortium with ExxonMobil and CNOOC is, of course, a complex arrangement, but the geological advantages are undeniable. The presence of Venezuela, with its vast reserves, is also a factor, though one fraught with political risk. A prudent investor acknowledges risk, rather than pretending it does not exist.

Resilience in a Shifting Landscape

Oil prices are, as expected, rising. This will, naturally, bolster margins. It is worth noting that the best-performing sectors are those grounded in tangible assets – energy, materials, consumer staples. The current infatuation with artificial intelligence is, to put it mildly, excessive. The pursuit of novelty often obscures the enduring value of the practical. Amidst concerns about valuations and AI spending, investors are beginning to rediscover the virtues of companies that actually produce something.

Management has stated that the company can sustain its dividend and investments at a Brent crude price of fifty dollars per barrel. The current price is considerably higher. This provides a margin of safety, a buffer against unforeseen circumstances. Flexibility, in any endeavor, is a valuable asset.

The recent four percent dividend increase – the thirty-eighth consecutive year – is a testament to the company’s stability. There have been oil crashes during that period, yet the dividend has remained secure. This is not a matter of luck, but of sound management and a robust balance sheet. Reliability, in a world of constant change, is increasingly rare.

A Foundation for the Future

Even at its current high, Chevron remains a balanced investment. The yield is still a respectable four percent. The valuation is not cheap, but it is reasonable, particularly when viewed in light of the company’s earnings and cash flow. The decline in earnings last year does, admittedly, inflate those multiples.

In sum, Chevron offers a degree of stability that is increasingly difficult to find. It is not a glamorous investment, nor is it likely to generate overnight riches. But it is a sound investment, grounded in reality, and capable of weathering the storms to come. For those seeking a foundation for their portfolio, it remains a prudent choice, especially in a market obsessed with illusions.

Read More

2026-02-12 10:12