PreMarket Prep Stock Of The Day: Chevron Corporation

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

The media is fixated Monday on the May contract for crude oil going negative by well over a few hundred percent at its low and its divergence in price from the June contract, (-$22.50 vs $21 as of 3 p.m. EST), which is known as contango.

All of this was detailed on Monday's PreMarket Prep show by commodity broker Paul Perlman of Glenwood Financial Inc.

Both hosts agreed: if you have to get down and dirty in the oil patch and believe in the commodity's rebound, go with the best in breed up until this point: Chevron Corporation CVX the PreMarket Prep Stock Of The Day.

Chevron's Long-Term Price Action Vs. Exxon Mobil

While Exxon Mobil Corporation XOM has been on a slow and steady decline since it peaked in July 2014 at $104.76, Chevron did not peak until January 2018 at $133.88.

It should be noted that the issue was as high as $122.72, or only 8% off its all-time-high, in mid-January.

Exxon Mobil was 32% off its all-time-high before they both fell as the market and crude oil prices entered a steep decline.  

It should be noted that both issues shed nearly 60%. Yet Chevron was able to rally 74% off its March low of $51.60 when it peaked on April 9 at $89.91. 

The trough-to-peak rally in Exxon yielded only a 55% gain when it peaked on that same day at $46.71.

Chevron's Short-Term Price Action Vs. Occidental Petroleum

In retrospect for Chevron shareholders, it's a blessing that they lost out on the bidding war with Warren Buffett-backed Occidental Petroleum OXY for Anadarko Petroleum in a deal that closed in August 2019.

When the bidding war heated up in February 2019, Occidental posted a month's-end close of $66.15 and Chevron ended the month $119.58. As a result of the gross overpayment for Anadarko, Occidental shed 86% of its value and reached $9 in March, while Chevron fell 56% from the February 2019 month-end close to the low of the move. 

Chevron Moving Forward

The May crude oil futures contract was down over 100% as of 2 p.m. Monday. The destruction is due primarily to the contract's expiration Tuesday. The outlook for futures prices may be bad, but not nearly as bad it appears at this moment.

There are a few factors to consider when investing in companies in this sector. First of all, the long-term trend in crude oil was down before the COVID crisis and does not appear to be turning around anytime soon.

Secondly, with the move to cleaner energy like electric and solar, will the demand for oil ever return to former levels?

Finally, will the overall economic destruction created by the crisis be repaired quickly? Will a recession or depression be avoided?

If an investor is comfortable with the aforementioned factors, then Chevron Corporation, based on strong relative performance, may survive and even prosper when the economy rebounds.