Thursday, November 13, 2014

Battlefield Oil


Gas was $2.80 for me this weekend.  That was with my gas card's 3 cents/gallon discount.  Going through my ranking system for the month 3 big oil companies were in the top 100 list.  High yields?  Good value?  Let's take a look at how the 3 end up in a battle against each other using the DFG ranking system.  I do need to work some more on that page once I have some more time.

The companies I will be looking at are all well-known companies.  ConocoPhillips (COP), Chevron Corp. (CVX) and of course ExxonMobil Corp. (XOM).  All of them are energy companies that have businesses that deal with exploration of oils and gasses, production, refinement, etc. though out the world.  XOM and CVX are both dividend champions (25+ straight years of higher dividends) while COP is an up and coming contender (10-24 straight years of higher dividends.)  

Value
ExxonMobil has the best value when I put the ranking together.  The price to earnings and sales both out did COP and CVX.  The company continues to make a ton of money.  We will see if that continues the rest of the year if prices remain low throughout the holidays.

Company
P/E
P/S
XOM
11.98
0.95
CVX
11.39
1.04
COP
11.79
1.65

Growth
There are some benefits to being smaller.  This has allowed COP to grow fast and over the last 5 years they have seen 21.1% growth.  CVX takes second with a dismal negative 1%.  XOM has had negative 3.2% over the same time and takes last place.

I am still working on learning trend lines in Excel.  2011-2012 were the tops with earnings in 2013 and the past twelve months staying steady.  The only bad year was 2008, the Great Recession, and only for COP.  The other 2 behemoths were able to weather the storm.


Quality
Again CVX shines on this as it ranked 39 companies ahead of XOM and 43 ahead of COP.  I would have expected COP to be last because of its size and cash flow.  XOM on the other had has tons of free cash but ranks very close to COP regarding quality.   XOM's high P/B is the primary driver behind the ranking.  From this perspective you would prefer CVX on dips and get more bang for your buck as the 2 have very close Debt-to-Equity ratios.

Company
MRQ Price/Book
Debt/Equity
CVX
1.47
0.15
XOM
2.23
0.12
COP
1.71
0.38

Yield
One of the more important factors for dividend investors.  This has been fluctuating quite a bit lately for oil companies.  If you were lucky you bought in the October dips and are starting off with a nice entry yield.  I look at the 5 year growth rate mainly because I look at all Champions, Contenders and Challengers.  I would prefer 10 year metric but that would weed out some good potential growth companies.

COP has been affected more by the recent swings.  I get alerts on dip sent to my phone and the texts pile up on it more than the other 2.  It's high yield and double digit growth rate over the past 5 years puts it at the top.  We will see if COP can continue the growth over the long haul.  CVX and XOM are very respectable as well.  I plan on holding all three companies eventually.

Company
Dividend Yield
5 Year Dividend Growth Rate
COP
3.82%
13.3%
CVX
3.59%
9.0%
XOM
2.93%
9.7

All the payout ratios are well below the 75% guideline pretty much every dividend investor uses.  The guideline helps us to determine if there is enough cash to cover the dividend and how likely it is to be cut (no cash).  Morningstar where I get allot of good information didn't have a payout ratio for COP for 2008 thus the dip down to 0 that year.  Being a smaller company it is still investing heavily and hasn't built up the cash reserves that the other two have.

Had problems with this chart on Excel Online so it is just an image.


News
I did a quick scan in my ShareBuilder account to check the news on all three companies.  All the news was centered around the cost of oil per barrel.  At this time I am not worried about the price.  Oil and gas are not a renewable resources so companies in this area will remain profitable until an alternate energy source overtakes them.  That might not be for decades so for now I am okay with the news.

The Winner
The final votes are in and the winner is COP.  Yes that was surprising to me as well.  I do not put a weight on yield but I think it played an important part in the overall score.  Since I already own COP I may look at the other two on dips as they are all good companies to own.  

Any of these on your radar this month?

Company
Overall Rank
COP
11
CVX
26
XOM
50

Full Disclosure: Long on COP

On a side note I have started using royalty free clip-art.


8 comments:

  1. It's nice seeing gas under $3.00 a gallon again. I pump my gas at Chevron, gotta support America haha, so it's slightly above $3.00. I think it cost around $60 to extract a barrel of oil. I wonder how the oil companies are going to be effect by this mess. There is a lot of supply coming online, so those high prices might not be around anything time soon. What do you think?

    ReplyDelete
    Replies
    1. Supply will match demand over time. Once that happens prices will stabilize. Profits may shrink in the short term but economies will recover and grow over the long haul. I think the big companies (CVX/XOM) have learned this overtime and stockpile cash for when this happens.

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  2. Hi DFG,

    I have an electric car so I don't even notice the pump prices except when it's in the news. It's been interesting reading on how the low prices is reducing sales of hybrid cars and promoting sales of larger trucks.

    I hold XOM and CVX and will probably be looking to add more next month. I'm hesitant to buy COP because it seems more volatile to me but we'll see.

    I imagine that lower prices will drive more efficiency to the oil companies to maintain their margins and so when prices do go back up they'll be in even better shape. Certainly as you say, oil and gas are always going to be in demand and the market will adjust itself.

    Best wishes,
    -DL

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    Replies
    1. Hi DL,
      It does seem more volatile. As long as the dividend keep growing at the current rate I viewed it as worthy of taking the risk. I will likely not add more to it though and look to diversify with CVX and XOM.
      DFG

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  3. Thanks for sharing your analysis. All three stocks are on my watchlist and I have to admit that COP is my first pick though it might make sense to pick up a little CVX too. Why not diverse into a couple well known energy dividend payers.

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  4. DFG,

    Thank you for sharing your analysis of these three great oil companies. If I didn't own as much oil stocks already, they'd surely be on my watchlist.

    Currently I'm more invested in European oil companies: BP, Royal Dutch Shell and Total. With the fall in oil prices it's amazing how cheap they've become!

    Cheers,
    NMW

    ReplyDelete
    Replies
    1. Thanks NMW. Yep everything else keeps going up but the oil companies are showing losses for the year. Great time to buy them.
      DFG

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