The S&P 500 since 2010 has tended to perform well in earnings months, and the main reason is simple: Since 2010 earnings have been good for the most part. With the overall markets flat to slightly down for the year, and expectations dampened pretty well, the parade of earnings that starts this week may be able to to put some oomph into things if numbers come in good.
In an interesting research note from T.J. Thornton, outstanding Jefferies U.S. Product Management guru, he points out that not only is April usually a solid month, up 1% or more on average, but energy tends to be particularly strong, beating the other nine sectors and outperforming the overall S&P 500. Energy had an outstanding Friday, and we noted some of the reasons why.
We screened the Jefferies research universe for energy stocks the firm has rated Buy that could catch some of the solid April outperformance.
Chevron
This is very solid story for investors looking to stay long the energy sector, and it’s a preferred U.S. company to own now. Chevron Corp. (NYSE: CVX) is an integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. The company sports a sizable dividend, and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some Wall Street analysts estimate the company will have a compound annual growth rate of over 5% for the next five years, and the stock trades at a modest valuation discount to some of its mega-cap peers.
Chevron management continues to aggressively pursuing cost-saving initiatives and has already completed over 2,200 supplier engagements, with more in progress. Cost savings and improving investor sentiment may be a key for Chevron as it has struggled mightily over the past year. While many on Wall Street concede that the oil market could be oversupplied for longer than most thought, massive overseas demand and a production slowdown should help pricing the rest of the year.
The company’s Permian Basin assets are a goldmine, and that the Australian LNG business will transition from a yearly $8 billion capital consumption drag to a $2 billion to $3 billion contributor. Combined with the much lower overall capital spending for the 2016 to 2018 period, the company is poised to not only hang around, but end the sector slump in a much better position.
Chevron investors receive a massive 4.44% dividend. The Jefferies price target for the stock is $110, and the Thomson/First Call consensus price target is $98.34. Shares ended last week at $96.33.
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