Was working on that as began this chat...
Where are oil priced headed ? Is CVX over-valued ?
I suspect my first answer (assuming I arrive at one I deem valid) will be frustrating for many... as I think "the answer" is not a "price point" for oil... but a dynamic correlate in a time function... in which it is "balances" in relations with other things... and not mostly $ in a fixed price point... that determines limits...
So, punting on that for now... work to do...
The easier answers to address now... are not in "how high will oil go"... as much as in "which oil stocks represent good values"... at the current price point (or less)... even while accounting for some cushion ???
And, that answer too is mostly a time function of performance versus value... over time...
So, noted that JP Morgan put out a note Friday (?) saying "stick a fork in CVX"... Let's start there: Is that right ?
The entering argument is... CVX has always been "the blue chip" oil company... not without reason as they are exceptionally well managed. If you want to own "the best"... buy CVX. But, then... "buy low" in that context... means what ( /when /how ? ) ? I don't really want to own "the best"... which is almost by definition going to be "over-priced"... as you must pay not just for the oil company... but for others recognition of superior quality. I want to own "the best upside" (for a while) ... which is something entirely different. But, as CVX quality means, almost always... "fairly priced... plus" that has you paying more for the "quality" of the issue than only the value of the assets, revenue, income, or yield, or potential upside ? What is the right "overly priced point" where it makes sense to buy CVX's superior quality ?
I think what you saw happen in the market recently... was a lot of people saying... "hey, look at what OXY just did... and CVX is a better company than OXY... so it should move higher by at least as much" ?
Only... that's VERY wrong... as CVX was "fairly priced" as "the best" as a legacy argument... while OXY's legacy was... as a python... took years of struggle trying to swallow a pig whole... until it succeeded... which has not won it any "market premiums"... or even recognition of intrinsic value of the whole... snake and digested pig. It's been sleeping it off for a while...
So, in charting them... you'd have to use a proper proxy set in a time value to capture revaluation impacts over time... so, charting from long enough back... to capture the point that performance comparisons diverged... ?
"The right time period" (or periods) in a chart... to capture what you are looking for... is a subject I've been nattering on about quite a bit recently... Chart views change depending on start and end dates... so it matters that the dates you pick... can fairly represent the features your looking to see... and not lose them in the noise of "other stuff" ?
So, avoiding the harangue;... pick chart dates from which "valid comparisons" might be made... that requiring "more than one"... so, I'll use two monthly charts ensuring "perspective" to avoid "cherry picking" in the chart basis used versus a single chart based comparison... and then, a recent view showing two charts of more current performance on weekly charts.
I've selected "off the commodities peak" in 2011 as perspective... and a "break point" from the peak in May/June of 2014... then, weekly charts "before and after" the transformational 2020 event... And, here's the comparison charts... showing CVX being always well regarded... others less so... through their variable dynamics in the last few years... which lets you see... "where the value went... and when" in the changing market perceptions of value in price over time... (which is not the same thing as "value changing"). Note the change apparent in the shifts at the March 2020 "reset" event... and post performance... ?
As you see... a short term view says CVX is under-performing... when it isn't...
Instead... the others all have "dormant" value that has not been being recognized... that is "just starting" to be recognized now...
Validate all that with simple comparisons in "fundamentals"... which should include the real effort in doing the DD showing "dynamics" in value of each vs time, in a track record, given exploration potentials, and probabilities of realizing plans for the future in the development of untapped potential, etc., each with different potentials that might become "earnings growth" over time, with variable rates likely in achieving that growth, etc.. But, simple enough to "sanity check" it quickly with the obvious:
CVX P/E 21.00
OXY P/E 36.86
GTE P/E 13.62
CPG P/E 2.24
So, what do I see ? Differences in scale, growth potential, and valuation... And, I see that traders looking at a short term daily chart... not considering DD or longer term performance history... might think CVX has "a lot of catching up" to do... but, it doesn't...
But, look at the longer term charts... and it looks like JPM called it "more or less" right... although... I expect their purpose is likely "in relation to" near term price projections they're not mentioning in seeking to put "quality" on sale, just now... ?
But, if you don't anticipate "higher" oil... it's already far and away the most highly priced of them... has never really been allowed to grow "undervalued" and isn't now... should still trade higher "with oil, on trend, minus a lag" while discounting for recent price volatility with a smoothed trend... It is an already fairly valued issue moving higher on pace with oil and then some. If not anticipating higher prices, but waiting for them to justify higher... it should be sold... or the price risk hedged...
But, if JPM succeeds in taking it down a notch or two... as oil resumes higher... it will sustain its premium... and a proper triangulation of oil prices vs time vs CVX price dynamics... might enable buying "quality" cheap on a time / risk adjusted basis. Pretty much what the options trade enables... if you time a trade well and call the lows right... and convert in the money only once the dynamic shows its a win... ?
The Russians haven't lost the war yet, have they ? Or, won it ? Biden hasn't (been allowed to) blink... yet. And, any outcome you project... only makes the risks worse ? What's the least worst path among known unknowns ? I don't view the event as "a new event"... but a continuation... on trend... and don't see much that might be changing the trend ?
On OXY... I called it "under-valued" before it moved... and, I trust Warren can probably do the DD on OXY well enough to not misplace his bets ? That's work I did way back before CVX lost the bidding war to OXY... so, not throwing darts in the blind... It was always going to be "a matter of time"...
I know GTE's track record in performance well enough, and its potential to deliver extraordinary growth... They don't miss much... and I expect it will continue to outperform others on the list in the short term... Juniors already in the black with big upside potential and ability to deliver... usually sport higher PEs than well established majors ? GTE still has catching up still to do... just on a value basis in the existing production... The higher oil goes... the more that upside leverage is likely to be revealed... but, they "planned for success" this year... based on less than $80 oil... and we're "more" now ?
I'm new to CPG... but... its big... had a PE of TWO... BEFORE prices rose by X %... so... duh...
Just ask... what should the P/E be in a rapidly rising market... or... "what's the takeout price" ... if $332B CVX or $54B Oxy decided to buy $6 billon (debt plus equity) CPG... and reprice its production from a PE of TWO (call it 3, prior quarter, with debt fully amortized) ... to 21 or 36 ? Again... the higher oil goes... the more ridiculous that P/E becomes... but, even a declining price doesn't obviate the potential in that math... Others balance sheets rapidly healing... will make acquisitions heat up starting in... oops... where'd OMP go ?
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