The S&P 500 Energy is up more than 10% since last Tuesday as the oil prices jumped to $75 a barrel. Investors, however, are starting to get a bit uncomfortable since a move to near $100 could hit the sector in the long run.
Why David Bahnsen likes Chevron Corp
Amidst the concern, David Bahnsen of Bahnsen Group is long on Chevron Corp (NYSE: CVX). Bahnsen agrees that oil prices getting close to $100 bears risks for the oil sector in terms of “long-term demand destruction”.
His outlook on Chevron, however, is not based on the price of the commodity but the fact that the oil giant is currently trading significantly lower relative to its “normalised free cash flow”. On CNBC’s “The Exchange”, he said:
Chevron is a 5.5% dividend payer in a weak part of the market with plenty of road ahead. But you also have to remember the natural gas story, the downstream story; it’s an integrated company, Chevron has a lot of ways it can make money regardless of the oil.
Mad Money host Jim Cramer agrees
Bahnsen’s thesis is in line with Jim Cramer who also picked Chevron Corp as his favourite integrated oil company last Friday and recommended the stock to investors who wanted to play it “safe”.
JPMorgan Chase, on the contrary, downgraded the stock recently to “neutral”.
Shares of the American multinational are up more than 20% on a year-to-date basis. The $200 billion company has a price to earnings ratio of 55.38.
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