Is Chevron Corporation (CVX) A Buy? — Wells Fargo & Co (WFC)’s John Stumpf thinks so

Share on FacebookTweet about this on TwitterShare on Google+Share on RedditShare on LinkedInPrint this pageEmail this to someone

Independent director of Chevron Corporation (NYSE:CVX) and Wells Fargo & Co (NYSE:WFC) Chairman, John Stumpf, seemed to be excited about Chevron Corporation (NYSE:CVX)‘s stock. After a long gap of insider activities, there was one transaction in the current month of acquiring 180,000 shares. This raised a number of questions. The interesting aspect is that the purchase came following the Brent crude oil spot prices witnessing an increase in April.

Is the banking chief, calling a bottom in oil with his purchase of CVX?

Key Factors

John Stumpf spent $19.46 million to buy Chevron Corporation (NYSE:CVX) shares at an average cost of $108.10 a share on May 11. The purchase increased Stumpf’s current direct holdings to 181,885 shares, the total holding, including indirect, increased to 200,093 shares.  His purchase of shares is the biggest individual insider acquisition for more than a decade. The previous biggest insider transaction  happened on May 11, 2005, when Daimler Chrysler’s former chairman, Robert Eaton, acquired $1 million worth of shares.

Stumpf’s acquisition of Chevron Corporation (NYSE:CVX) shares is the first one in the current year. His earlier purchase was 10,000 shares purchased for $964,300 at an average cost of $96.43 per shares. He has been on the board of Chevron since 2010.

The acquisition would likely be interpreted as Stumpf’s might have some insider perspective on oil and Chevron. Both companies’ preferred to remain silent on Stumpf’s purchase of Chevron Corporation (NYSE:CVX) shares recently.

Analyst Comments

Any significant quantity of buying by an insider would obviously be keenly watched by both analysts, as well as, investors. Insider Insights.com Research Director, Jonathan Moreland, opined that that the transaction by Stumpf only indicated a bullish trend as far as the shares of the company was concerned. He pointed out his past record and said that four years back, his transaction turned out to be a successful one.

Another analyst, Dominick Manaro of Executive Buying, said that the latest transaction of Stumpf showed confidence. This led him to think that there is plenty of value left at the current levels. He said that the latest purchase provided a big bet and termed it a real valuation call. Manaro also believes that Stumpf action is clearly a bullish indicator given the pas track record of Stumpf and the size of the purchase.

Near-Term Outlook

According to the Energy Information Administration, Brent crude oil spot prices advanced $4 per barrel in April to $60 per barrel on monthly average basis. Incidentally, this was the biggest increase in the monthly average in the current year. There was also upward pressure on crude oil prices. For instance, worldwide demand for oil is witnessing an accelerated growth pace, tightening of oil production to fall in the coming months amidst the elevated risk of unplanned supply outages.

The EIA disclosed that the drilling rigs number for crude oil dipped for 21 straight weeks. As a result, it was over 50% below the peak level recorded in October last year. Significantly, Brent crude oil prices advanced despite oil inventories growing globally that built over two million barrels a day for the second straight month in April. In comparison of March, as well as, last year April, the average build was only 0.8 million barrels a day.

EIA projects average Brent crude oil price of $60.79 per barrel for the current year indicating a drop of 38.5% over the previous year’s $98.89 per barrel. Similarly, the organization estimates average WTI crude oil price of $54.32 per barrel in the current year. This meant it would record 41.7% drop from the previous year’s $93.17 a barrel. However, for the next year, EIA projects average Brent and WTI crude oil prices to witness a growth of 16% and 20.7% respectively.

Goldman Sachs Cuts Long-Term View

Interestingly, Goldman Sachs Group Inc (NYSE:GS) expects worldwide oil demand to be met by the United States shale as it continued to gain from productivity, as well as, efficiency improvements. The brokerage also expects that higher production from OPEC would be more than sufficient to cover the future demand too.

The investment advisor boosted its estimation of the average Brent crude oil price to $58 per barrel for the current year from its earlier projection of $52. Similarly, the brokerage increased its forecast for the light crude futures to $52 per barrel from $48.

For the next year, Goldman Sachs Group has slashed its forecast of Brent oil price to $60 – $65 a barrel. This price is likely to continue till the year 2019 and then would fall to $550 in 2020. The brokerage believes that the long spell of lower oil price would put enormous pressure on oil companies. This might force them to have a rethinking on the quantum of dividend payment.

Conclusion

Chevron Corporation (NYSE:CVX) delivered better than expected results in the first quarter. One of the factors that might have drove Stumpf to buy the shares of Chevron would be that there is less possibility of oil price trading below the $50 per barrel mark level. Also, oil prices seemed to have recovered or performing better than earlier expectations though the recovery might not be sufficient. The second quarter is likely to witness higher average price than the first quarter. The oil sector is still not out of the bounds. However, the fear of a steep drop seems to have gone. There appeared to be balanced risk/rewards.


Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

You may also like...

  • Max

    Im long CVX and SLB.

Read previous post:
altrinsic
Medtronic PLC (MDT), Thomson Reuters Corporation (USA) (TRI) And Community Health Systems (CYH): Altrinsic Global Advisors’ Best New Buys

Altrinsic Global Advisors LLC was very active in 1Q2015, starting fresh positions and selling out of several stocks. The fund...

Close