Basic Needs Portfolio Selection: Chevron Corporation (CVX)

Page 1 of 2

Five weeks ago, I outlined my plans to create a portfolio of 10 companies that all have one thing in common: They provide a basic need or deliver life’s necessities. It’s my contention that basic-needs companies can offer investors stability and growth throughout any market environment thanks to consistent demand, incredible pricing power, and delectable dividends. This portfolio, which I have dubbed the Basic Needs Portfolio, will be pitted against the S&P 500 over a period of three years with the expectation of outperformance for all 10 stocks. I’ll be rolling out a new selection to this portfolio every week for the next five weeks.

You can review my previous four selections here:

Waste Management
Intel
NextEra Energy
MasterCard

Today, I plan to introduce the fifth of 10 selections to the Basic Needs Portfolio: Chevron Corporation (NYSE:CVX).

How it fits with our theme
Chevron Corporation (NYSE:CVX)There are no magic surprises here: We need energy to provide electricity to our homes and businesses and power our cars and trucks. Chevron Corporation (NYSE:CVX) is a diversified oil and gas company that does everything from drilling for oil, natural gas, and natural gas liquids, to refining petroleum into everyday products such as fuel for our cars.

Credit: Chevron Corporation (NYSE:CVX)

What we often forget is that on top of being a domestic and international juggernaut that supplies the world with much of its energy needs, petroleum has numerous other uses outside of energy. According to Ranken Energy, a 42-gallon barrel of oil makes 19.4 gallons of gasoline. The remaining petroleum is used to make some 6,000 different items, including household products like plastic containers, dishes, and candles, women’s cosmetics, and even the tires on your car, just to name a few. Petroleum is an essential of life, so it only makes sense to include one of the biggest companies involved in drilling for, retrieving, and refining petroleum products in this portfolio of basic needs stocks.

The risk
The three biggest risks that integrated oil and gas companies face are political unrest in overseas markets, imprudent capital expenditures, and a global growth slowdown.

Rebel guard in Libya, March 2011. Source: BRQ Network, Flickr.

Despite operating around the globe, many of Chevron Corporation (NYSE:CVX)’s assets are well-protected from political unrest or violence. The same can’t be said for Italian-based Eni SpA (ADR) (NYSE:E) which saw a good chunk of its oil production come under serious pressure in 2011 because of civil unrest and an eventual regime change in Libya. At the time, 14% of Eni’s daily production – nearly 250,000 barrels – came from Libya and it maintained quite a few other undeveloped assets in the country. Eni SpA (ADR) (NYSE:E)’s prospects have since improved, but other oil and gas companies deal with the similar potential for unrest on a daily basis.

No oil and gas driller is perfect, not even Chevron Corporation (NYSE:CVX), and all have made an imprudent asset investment before. Luckily for Chevron, the company’s diversified global assets provide ample cash flow – an average of $11.4 billion over the past three years – which makes it easy for the company to utilize this cash for drilling activities or improving its refining capacity.

On the other hand, Chesapeake Energy Corporation (NYSE:CHK) got itself in a lot of trouble when natural gas prices sank to a decade-low last year. Chesapeake leveraged itself to the hilt by purchasing natural-gas-heavy assets last decade but was forced to reduce its output when nat-gas prices hit their lows. Chesapeake Energy Corporation (NYSE:CHK) would have actually run into a capital expenditure shortfall in 2013 if it didn’t sell off some of its assets to boost its available cash.

Finally, there’s the threat of a global slowdown which would negatively impact the need for oil, natural gas, and natural gas liquids, and send prices and volume markedly lower. This is a threat that diversity of assets certainly helps abate, but that Chevron Corporation (NYSE:CVX) is unable to completely escape from.

Why Chevron?
Despite the risks mentioned above, I feel Chevron is the strongest and most attractively priced integrated oil and gas company.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!