Top picks 2012: Chevron

Investors stand to benefit from higher oil prices and dividend growth policy.

By TheStockAdvisors Dec 27, 2011 9:31AM
Image: Gas station (© Julia Christe/fStop/Getty Images)This post is one in a series in which 50 newsletter advisers share their top stock picks for 2012. 

By Kelley Wright, IQ Trends

Every year the markets present investors with both challenges and opportunities.

We believe investors will have to wade through myriad challenges in the first-half of 2012 -- both geo-political and geo-financial, not to mention the ones that come from left field.

Sometime in the second quarter, possibly at the end of April or by mid-May, we believe the major indexes will put in a low. We do not think it will exceed the March '09 low; however, we would not be surprised to see the retail investor exit the markets in frustration and disgust.

In the second half, with diminished retail participation, we can imagine an environment similar to 1975-1982, where the indexes churn not necessarily sideways but within a trading range with a slight upward bias.

Also similar to the 1975-1982 period, we believe high-quality U.S. blue-chips will generate earnings and increase dividends beyond expectations, eventually creating a "pressure cooker" from which stock prices will explode once these generational values are recognized by the markets.

Part of our long-term macro view is that oil prices will rise and challenge the old high of $145 per barrel. This will be good for the most "oily" of the major oil companies, Chevron (CVX).

Historically, CVX represents good value when the dividend-yield is within 10% of 3.5%. Based on the current dividend of $3.24, good historic value is between $93 and $102 per share.

Fundamentally, the company is quite sound: A price-to-earnings ratio of 8, long-term debt to equity of 8%, book value at about 1.5 times, and a payout ratio of just 24%.

The historically repetitive low-yield area for CVX is 2%, which, based on the current cash dividend of $3.24 per share, is realized at $162.

Chevron has earned the IQ Trends "G" designation, which denotes a remarkable 10% average annual dividend growth over the past 12 years.

Assuming the company maintains this dividend-growth policy, we anticipate that the historically repetitive low-yield boundary of 2% will move higher in price terms as the dividend is increased.

Steven Halpern's offers a free daily review of the favorite stock ideas of the nation's top financial newsletter advisors.
Tags: CVXoil


Dec 27, 2011 1:39PM
Great stock?  I've loved it for a decade now.  Buy at nearly the 52 week high?  Wrong. 
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