Chevron is the kind of company that is capable of continuing to post large profits – propelling its share higher from current levels – even if oil-and-gas prices were to decline during the next 36 months. That’s because Chevron’s business is well cushioned, since refining, marketing and chemicals margins would expand dramatically if market “spot” prices were to decline. Also, the company’s production is poised to expand strongly and Chevron uses some selective hedging that works very well in downside oil markets.

Problems to Vault Over

Chevron was recently forced to reduce its second-quarter guidance to Wall Street, essentially due to losses in its refining and marketing segments (where it underwent major maintenance), and because it suffered some hedging losses.

And yet, despite all these “problems,” the second quarter will be a record one for Chevron.

Investors also can expect to hear upbeat progress updates on the company’s key new exploration projects, one of which – the Abgami Project in Nigeria – should begin actual production very soon.

While conceding the near-term results may come in below my expectations, let me say that I still prefer Chevron to the other integrated U.S. oil-and-gas producers because of its higher potential reserves, more-aggressive exploration efforts, and because of an intermediate boost in benefits from production increases in its Kazakhstan, North Sea and West Africa projects.
One problem we have to accept is that this quarter’s disappointment in refining and marketing will linger as a blot on the company’s predictability in the memory of Wall Street’s analyst community, which could hold down the price of Chevron’s shares, or even depress them further in the near term. View these depressed share prices as an opportunity: For investors who don’t yet own Chevron stock, the lower-than-warranted share price could give investors the chance to establish a position in this company’s shares.

In the intermediate term, if it starts to look like Congress is going to do what’s needed and set in motion the changes needed to finally permit exploration-and-production operations in offshore U.S. waters, Chevron will be well ahead of the pack.

So buy CVX shares in progressive stages – starting small before and after the Aug. 1 earnings report – and you could see the stock price escalate some 50% from current prices within a year if the scenarios we’ve sketched out for you here unfold as we expect.

Editor’s Note: Horacio Marquez was working as a vice president of the Merrill Lynch Emerging Markets Fixed Income Group in 1994 when he correctly predicted that both Argentina and Mexico were headed for currency crises – cementing his reputation as an expert on both the emerging markets and on the nuances of global finance. Now Marquez brings that expertise to you with his newly created “Shadow Stock Trader” service. To find out how to subscribe, please click here. Marquez’s new “Buy, Sell or Hold” feature in Money Morning has so far covered Chevron, Cisco Systems Inc. (CS), ABB Ltd (ADR: ABB) and Cummins Inc. (CMI). We continue to appreciate all the readers that are writing to us, suggesting stocks they’d like to see analyzed.

Source: Chevron Says Hurricane Dolly Evacuation Won’t Affect Company’s Gulf Oil Production

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