Barron's helped thousands beat the market by roughly 6.5% with their top stock picks for 2023. Could history repeat itself? If you are at the desk wondering which stocks deserve to get a taste of your investment dollars this year, here's why you should consider Chevron (NYSE: CVX) as one of Barron's picks for 2024.
Today, you can build from the ground up or look at this situation from the top view, whichever way you prefer. There are many reasons why Chevron stock is an attractive name to consider adding to your 2024 watchlist. Analysts backed the name for double-digit upside, and markets made the stock stand out from its peers in ways you'll soon discover.
Fundamentals are one thing to focus on. However, timing is of the essence when you are seriously considering deploying your capital. Considering that the Energy Select Sector SPDR Fund (NYSEARCA: XLE) has underperformed the broader S&P 500 index by as much as 26.4% in the past year, a turnaround could be in the works for the energy sector.
Side with the house
The range for the price per barrel of oil has been set at $70 to $100 by analysts at The Goldman Sachs Group (NYSE: GS). Considering that the price has already retraced down to the lower end of these projections to start 2024, there is no better time to sit down and analyze how or why prices could come back up.
You see, now that the FED is proposing interest rate cuts for this year, the dollar's value is at risk of a decline. Simply because interest rates represent the price of money, these cuts could trigger one side of the equation, helping Chevron sell more expensive oil.
Because oil is quoted in dollars, and fewer dollars would buy the same amount of oil. Naturally, the price per barrel could rise as a result. The other side of the equation is the stronger trend at play here, again one backed by the house (Goldman); here's how you can get the odds in your favor.
The United States economy is divided into two diverging developments today. On the one hand, the services sector is pushing out higher prices, adding more jobs, and creating more demand. On the other side, manufacturing industries are seeing the ugly side of what higher interest rates can do to business activity.
In their 2024 macro outlook, Goldman analysts are betting that these coming rate cuts will likely spark a massive turnaround and breakout in the manufacturing economy. Unless artificial intelligence takes over the oil industry this year, Chevron will be set to receive the benefits of this trend.
Of course, a story without figures is just a fairytale, and you are not here to make punts on your hard-earned money, so here are some additional insights for you to check the story.
Making sense of the game
Taking the sector as a whole, you can gauge where analysts stand regarding the future earnings prospects for each stock in the space. For the sake of contributing to a bullish case in Chevron, its closest competitor, Exxon Mobil (NYSE: XOM), will be in question.
Analyst projections suggest that the oil and gas industry is set to grow its earnings per share by an average rate of 6.3% for the next twelve months, so what you want to see is an outlier (to the upside) projection for Chevron stock otherwise that wonderful story will not stand.
Exxon analysts have agreed to assign a 6.9% growth in EPS for the next year, which is barely above the industry average and definitely not something you'd write home about. This set underperformance may be why insiders have been getting rid of their stock in the past quarter, but who knows?
Now for the answer everyone is looking for: those analysts covering Chevron stock see a 17.4% jump in EPS for this same period; now Barron's pick starts to make a lot more sense, and the timing stars are almost aligned.
Management is well aware of this potential new trend, so they are comfortable paying shareholders a 4.0% dividend yield today, which competes with the ten-year government bond yield of 3.9% today. More than that, the same analysts who are guessing Chevron will outpace the rest of the industry think the stock needs to rally from here.
With a $184.9 consensus price target on Chevron, the expectation is that a 24.0% rally is overdue, particularly now that these megatrends are heating up.
