Gas prices nearing $5.00 per gallon are displayed at Valero and Chevron stations on October 12, 2021 in Mill Valley, California.
Justin Sullivan | Getty Images
(This article was sent first to members of the CNBC Investing Club with Jim Cramer. To get the real-time updates in your inbox, subscribe here.)
After you receive this email, we will be buying 150 shares of Chevron (CVX) at roughly $111.79. Following the trade, the Charitable Trust will own 700 shares of Chevron. This buy will increase CVX’s weight in the portfolio from about 1.53% to 1.94%.
Markets are expected to open lower Monday primarily due to concerns related to the rapid spread of the omicron variant and the potential impact it will have on the economic recovery.
In addition to COVID-19 related uncertainties, Goldman Sachs cut its GDP forecast for 2022 after learning Sunday that Democratic Sen. Joe Manchin will not support the Biden administration’s “Build Back Better” plan.
As a result of these negative developments from the weekend, investors are taking a very cautious approach this morning. Stocks are down, the yield on the 10-year U.S. Treasury is slightly lower, and the price of WTI oil is back below $70.
There may be a lot of negativity in the market today with prices lower across the board, but we will do a little buying because we have plenty of cash sitting on the sidelines and we never like to shy away from a good discount. That being said, we want to be picky and selective with our buys right now as we still see the need to protect cash because the market is not yet oversold based on the most recent S&P Short-Range Oscillator reading. We plan to put more cash to work as prices move lower and the market becomes oversold.
Chevron is an idea we wrote about last Friday, and with our trading restrictions cleared Monday, we are free to pick some shares up and scale deeper into our position.
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Starting with the dividend, we find the now ~4.80% yield (based on the price at the time this was written) very attractive in the current environment and is plenty safe due to Chevron’s cash flow generation prowess. Even at $60 a barrel, Chevron thinks it can generate $25 billion of excess cash over the next five years, excess meaning what is left over after they fund their capital spending program and pay the dividend. Chevron can pull this off because its operating costs are down, production is up, and they have become much more capital efficient. Chevron is a better company today than they were just a few years ago.
While the dividend is great and offers a degree of support and defense in times of market duress, there is also a strengthening share repurchase story to like here. Management recently upped its share repurchase target to $3 billion to $5 billion of stock annually, up from their previous target of $2 billion to $3 billion. We think this target has room for further upside down the road should oil prices remain at the current level or move higher.
From an ESG perspective, we like the role Chevron is playing in the energy transition. To accelerate the growth of its low carbon business, the company announced in September that it will triple its total planned capital investment to $10 billion through 2028, including $2 billion to lower the carbon intensity of its operations.
The CNBC Investing Club is now the official home to my Charitable Trust. It’s the place where you can see every move we make for the portfolio and get my market insight before anyone else. The Charitable Trust and my writings are no longer affiliated with Action Alerts Plus in any way.
As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. See here for the investing disclaimer.
(Jim Cramer’s Charitable Trust is long CVX.)
