With remarkable consistency, oil stocks continue to do great on the stock market. Even though spot oil seems to be stuck below $100.00 a barrel, gasoline prices have been going up for the last month, as U.S. refiners use January and February for maintenance shutdowns.
Any way you cut it, oil remains a huge part of our daily lives, and most oil stocks are trading at or very near their all-time record highs. I should qualify that—what I mean is that most big oil stocks are trading right at their highs. Even with the U.S. oil production boom (which is very real), smaller oil stocks just don’t go up in value unless the spot price is doing so as well.
I always love consistency in a stock market investment. Consistent growth in earnings, dividends, and share price is absolutely golden, considering the volatility we get in capital markets. Save for pumping from your own oil well, you can only beat rising gasoline prices by owning a part of the company, and the biggest ones offer some of the best consistency the stock market has to offer.
Consider Chevron Corporation (NYSE/CVX), which is one of the large, integrated oil stocks that are trading at their all-time record highs on the stock market. But the stock isn’t expensive, with a current price-to-earnings (P/E) ratio of 8.7. The company has about $11.00 a share in cash and a price-to-sales ratio of around one. Its long-term stock chart is below:
Chart courtesy of www.StockCharts.com
Chevron is a member of the Dow Jones Industrials and has an outstanding track record of increasing its quarterly dividends to shareholders. Along with those dividends, this stock fits my “double-seven” rule—in the past, it basically doubled in value every seven years, averaging a compounded annual rate of return of approximately 10%.
Environmental issues aside, there is a role for large-cap oil in a diversified blue chip portfolio. Big oil stocks are consistent winners and dividend payers. They control the gasoline market and the distribution system. While Bakken oil is now a hot sector on Internet web sites, those oil stocks aren’t likely to beat Chevron over time. Like Warren Buffett, big oil just buys the best players. (See “Dividends, Buybacks, and Spin-offs—That’s All There Really Is.”)
Similar to other super stocks, Chevron is a blue chip oil stock that’s worth considering when it’s down. Even when U.S. refineries soon come back on stream 100%, gasoline prices aren’t likely to go down very much. And why should they? Big oil makes the prices.
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