Buy Chevron before US Market rally ? Read & decide.
It was a report that took everyone by surprise on Wed, 29 Nov 2023.
Yesterday saw the release of US Q3 2023, Gross Domestic Product (GDP) report - 2nd estimates.
Newly updated data from the Bureau of Economic Analysis (BEA) revealed that US economy actually grew at a 5.2% annualized pace, revised up from 4.9% reported in the advance estimate a month ago.
It really looked like US consumers have shrugged off higher interest rates and spent enough to help drive the economy:
To a brisk 5.2% annual pace from July thru September 2023.
From its modest 2.1% rate from April through June 2023.
Indeed, US Q3 2023 GDP, grew at its fastest quarterly rate in nearly two years.
Is US really living out the "Goldilocks” scenario?
That is US economy is growing at a solid pace but not so fast that the Fed needs to worry that it will be an upside risk to inflation?
Instead of celebrating, US market was caught off guard with analysts trying to wrap their heads around the set of figures, trying to make sense of them.
In the end, US market closed mixed for the third time, this week:
DJIA:+0.04% (+13.44 to 35,430.42).
S&P 500: -0.09% (-4.31 to 4,550.58).
Nasdaq: -0.16%(-23.27 to 14,258.49).
Media & analysts are still keeping a tight watch over Fed officials’ socialization that is still on-going.
Overall mood is “dovish”.
Below are what Fed officials have been mentioned so-far:
Fed Governor Christopher Waller said he is “increasingly confident that policy is well positioned to slow the economy and get inflation back to 2%” (see above)
Waller added that he could see a point where the Fed might start lowering rates if inflation continues to ease over the next 3 to 5 months.
Fed official Michelle Bowman speech at Salt Lake City, Utah was “darker” in tone. (see above)
She said “ …. we will need to increase the federal funds rate further to keep policy sufficiently restrictive to bring inflation down to our 2 per cent target in a timely way”.
However, she did buffer it with “However, monetary policy is not on a preset course, and I will continue to closely watch the incoming data as I assess the implications for the economic outlook and the appropriate path of monetary policy”.
Chicago Fed President Austan Goolsbee voiced concerns about keeping rates "too high for too long." (see above)
Once you believe you are on path to 2% inflation, amount of restrictiveness needs to be less.
Data will determine how fast we go.
And just like that “talk of keeping Decemeber 2023’s Fed fund rate status quo” have given way to “predicting that the Fed might (just might) start reducing interest rate.
Firing the first salvo was hedge fund manager Bill Ackman. (see above)
He predicted that the Fed would begin to slash interest rates as early as Q1 2024.
This he said is to avert “a real risk of a hard landing” for the US economy.
As he narrated to Bloomberg, if the Fed keeps rates around the 5.5% range while inflation trends below 3%, “that’s a very high real rate of interest.”
His words echos what Chicago Fed President Austan Goolsbee has mentioned over a radio interview.
Are the above mentions, elements of a Santa Rally in the making?
It sure looks a lot like it.
All that is required to seal the deal, would be US Personal Consumption Expenditure (PCE) report for October 2023, out later on Thursday morning.
With the OPEC+ meeting just underway, its certain that all members have come a consensus before the revised meeting proceeded as planned.
It is with certainty that additional production cuts are on the card, for next year (2024) to support the market.
Saudi Arabia, Russia and other members of OPEC+ pump about 43 Million barrels per day (bpd).
This is slight > 40% of global supply.
With already approx. 5 Million bpd of production cuts, already in placed.
According to the grapevine, even though potential size of additional cuts have not been confirmed yet, sources said it would be in the range of 1 Million to 2 Million bpd.
This will run minimally for Q1 2024.
Is it in plain sight that Energy stocks might just be the hit for this Q4 2023, Winter season?
I am referring to $Chevron(CVX)$ .
It is one of the world's largest energy companies, with operations in >180 countries.
It is also one of the Big Oil supermajors, along with:
Eni S.p.A.
In 2023, Chevron ranked 10th on the Fortune 500 list, with a revenue of $242.7 Billion and a profit of $35.8 billion.
Chevron also had a market capitalization of $271.67 Billion, making it the 31st most valuable company in the world.
Its YTD performance comes in lower at -17.29% (-$30.08) at $143.91 per share.
With impending oil production cut by OPEC+ countries, oil prices sees room for increase in the coming week.
To me there is no better time than now to consider energy stocks; with strong upsides.
Other compelling reasons:
(1) Strong dividend yield:
Chevron has a current dividend yield of 4.20% ($6.04). The company has a long history of dividend growth, with its dividend having grown over 35 consecutive years.
(2) Financial strength:
Chevron has a rock-solid balance sheet, with a debt-to-equity ratio of around 0.1244; that is a relatively low level of debt compared to its equity.
(3) Diversified portfolio:
Chevron’s business is spread across the energy landscape, from upstream drilling operations to downstream chemical and refining businesses. This provides a bit of balance to results, often softening the blow when energy prices drop.
(4) Future Energy earnings.
With its latest acquisitions of (a) Hess Corp (HES) for $53 Billion (in an all-stock deal) and (b) PDC Energy, Chevron is poised to emerge Shale oil and Gas producer.
Its majority stake in ACES Delta, a US hydrogen storage firm is also Chevron’s slowly but surely gradual diversification of its energy endeavours.
(5) Berkshire Hathaway’s holdings.
Chevron is still one of the Top 10 stocks (by stock size) in Berkshire Hathaway holdings.
It currently ranks #5 in terms of number of shares owned by Berkshire.
It says a lot about the business appeal of this stock to both Warren Buffett and Berkshire Hathaway.
Is there a need for further elaboration? Guessed not!
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