logo
  Join        Login             Stock Quote

Value Bets: Chevron and Wells Fargo

 November 29, 2012 11:39 AM
 


By Richard Moroney, editor Dow Theory Forecasts

Smart shoppers consider an asset's value before buying. Rather than chasing performance, buy stocks tinged with a healthy dose of pessimism.

And no matter how compelling a company's story, don't buy unless you're paying a reasonable price. Below, we examine two value situations  stocks with healthy businesses that appear cheap from multiple angles: Chevron (CVX) and Wells Fargo (WFC).

Of course, value investing can test a shareholder's fortitude. An undervalued stock may remain so for some time.

Worse, a stock may continue its downward slide, driving out all but the most stubborn investors until it forms a bottom, an in?ection point that becomes obvious only in hindsight.

Nevertheless, history and logic suggest that picking a diversi?ed portfolio of high-quality stocks with attractive valuations provides the best odds of success.

Headwinds have stalled Chevron shares, which returned just 2% over the last 12 months. After ten straight quarters of sales growth, Chevron reported declines of 10% in the June and September quarters, hurt by soft fuel prices and production problems.

Chevron must also contend with a $19 billion verdict awarded to plaintiffs in Ecuador last year. A judge in Argentina put an embargo on Chevron's assets held there — valued at roughly $2 billion — until the oil giant pays the entire verdict.

However, the company considers the Ecuador verdict fraudulent and unenforceable. Chevron generated operating cash ?ow of $26.03 billion in the ?rst nine months of 2012 and has $21.58 billion in cash on its balance sheet.

Chevron expects production to grow in the December quarter as new projects ramp in Australia and Africa. The company anticipates strong cash generation in coming years; and earlier this month, management said the dividend is the company's "single highest priority of cash use."

The quarterly dividend, raised at an annualized rate of 9% over the last ?ve years, is $0.90 per share, equating to an annual yield of 3.4%. Chevron is a Buy and a Long-Term Buy.

Wells Fargo earns Quadrix scores above 80 for both Value and Momentum, a rare combination offered by less than 4% of the stocks in our research universe of more than 4,500 companies.

Wells Fargo shares have lost some luster after getting dragged through a spate of lawsuits stemming from the housing bubble.

In the September quarter, the bank maintained its high-end estimate of lawsuit losses at $1.2 billion in excess of its current reserve — roughly 1% of the cash and marketable securities held on its balance sheet.

Perhaps more of a concern is low interest rates squeezing pro?tability, leaving the company with fewer attractive places to invest its rising deposit base.

But underlying trends for the mortgage business remain positive, as household formation begins to pick up speed.

Even considering interest-rate concerns, Wells Fargo shares look unduly cheap at just 10 times trailing earnings, 37% below their ?ve-year average and 22% below the average bank in the S&P 1500 Index. Wells Fargo is a Focus List Buy and a Long-Term Buy.
iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageChipotle Mexican Grill, Inc. (CMG) Q2 Earnings Preview: Will Higher Traffic Offset Higher Costs the Key

Chipotle Mexican Grill, Inc. (NYSE:CMG) will host a conference call to discuss second quarter 2014 read on...

article imageNetflix, Inc. (NFLX) Q2 Earnings Preview: The Ruby Month for a Reason

Netflix, Inc. (NASDAQ:NFLX) will post its second-quarter 2014 financial results and business outlook on its read on...

article imageLadenburg Thalmann Financial Services (NYSEMKT:LTS): Heavy, Durable Insider Buying

Ahh, but any worries over price levels didn’t stop multiple insiders at Ladenburg Thalmann Financial read on...

article imageInternational Business Machines Corp. (IBM) Q2 Earnings Preview: Small Beat and Pop

International Business Machines Corp. (NYSE:IBM) will host a conference call Wednesday, Jul. 16, 2014 at read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center

Related Articles:

Why I Like Financial Stocks For 2014
More Articles on: Finance



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.