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The best energy stock to invest ,000 in now

Chevron (NYSE: CVX) With an increase of just 2%, the share was at the bottom of the list in terms of performance last year. ExxonMobil (NYSE: XOM) has increased by 8% during this period and Sleeve (NYSE:SHEL) is up about 17%. But don’t count out Chevron if you’re watching the energy sector. In fact, this sluggish performance could make the company the most attractive integrated energy stock you can buy today.

What is Chevron’s problem?

The only word that should be on investors’ lips right now is probably “why.” So, why is Chevron lagging so far behind other integrated energy companies? A big part of the answer is that Chevron recently entered into an agreement to buy Hess (NYSE: HES)But Hess has entered into a partnership with Exxon that involves a large capital investment in the oil sector. Exxon is trying to block Chevron’s takeover by saying it can buy Hess out of the partnership.

CVX diagramCVX diagram

CVX diagram

CVX data from YCharts

That would make the takeover by Chevron significantly less attractive and could even lead to the deal being called off. Another problem is that determining who is right could cause significant delays and potentially require legal battles, which would be costly. This uncertainty casts a shadow over Chevron stock, as investors generally dislike uncertainty.

But it’s not all bad news, as it gives Chevron a pretty high dividend yield of 4.2% compared to its closest competitor Exxon, which only yields 3.4%. And while Exxon has increased its dividend for 42 years, Chevron’s impressive 37-year streak of annual dividend increases is hard to complain about. Simply put, both are reliable dividend stocks.

Chevron is better prepared for adversity

However, Exxon is by no means financially weak, but Chevron is currently in a better financial position than all of its closest competitors. In particular, Exxon’s debt ratio is around 0.2, while Chevron’s is around 0.15. European competitors use the leverage ratio much more heavily. Chevron has the strongest balance sheet among the large integrated energy companies. The leverage ratio is important because the energy sector is highly cyclical and prone to dramatic price fluctuations.

CVX debt-to-equity ratio chartCVX debt-to-equity ratio chart

CVX debt-to-equity ratio chart

CVX Debt-to-Equity Ratio data by YCharts

When oil prices fall, companies like Chevron generally tend to take on additional debt to continue to fund their operations. In the case of Chevron and Exxon, this money is used to support the dividend. When oil prices rise, Chevron pays off the debt it took on, preparing for the next industry downturn. The chart below shows this quite clearly.

CVX debt-to-equity ratio chartCVX debt-to-equity ratio chart

CVX debt-to-equity ratio chart

CVX Debt-to-Equity Ratio data by YCharts

So if you buy Chevron today, you own the strongest financial company in the energy sector. And it has a more attractive yield than its closest competitor, Exxon. But there is another factor to consider, and that is the Hess deal. Even if Chevron doesn’t acquire Hess, the company is large and financially strong enough to easily find another company to buy it. In other words, the negative sentiment here is largely based on a short-term problem.

Don’t be afraid to buy this industry laggard

At the end of the day, Chevron is a well-run energy company with a rock-solid financial foundation. Sure, there’s a very negative picture hanging over the stock right now, but that won’t last forever, and Chevron is more than capable of handling the problem. For investors who want to own an energy stock and are thinking long-term, Chevron is probably the best investment for $1,000 (or more) today.

Don’t miss this second chance at a potentially lucrative opportunity

Have you ever felt like you missed out on the best performing stocks? Then you should definitely listen to this.

In rare cases, our team of expert analysts publishes a “Double Down” share Recommendation for companies that they believe are on the verge of a breakthrough. If you fear that you have already missed your investment opportunity, now is the best time to buy before it is too late. And the numbers speak for themselves:

  • Amazon: If you had invested $1,000 when we doubled in 2010, You would have $21,765!*

  • Apple: If you had invested $1,000 when we doubled in 2008, You would have $39,798!*

  • Netflix: If you had invested $1,000 when we doubled in 2004, You would have $363,957!*

We are currently issuing Double Down alerts on three incredible companies, and an opportunity like this may not come again anytime soon.

Check out 3 Double Down Stocks »

*Stock Advisor returns as of June 24, 2024

Reuben Gregg Brewer does not own any stocks mentioned. The Motley Fool owns and recommends Chevron. The Motley Fool has a disclosure policy.

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