Wednesday Integrated Wrap-Up: SNP Rises; CVX Wavers
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Integrated oil stocks underperformed the S&P 500 index today +0.73% to +0.89%. Industry leaders included HollyFrontier Corp. (NYSE: HFC) and China Petroleum & Chemical Corp. (NYSE: SNP). These stocks rose 3.64% and 2.27% on volumes of 2.90M and 165.60K, respectively. Industry laggards included BP (NYSE: BP) and Occidental Petroleum Corp. (NYSE: OXY). These securities fell 0.74% and 0.51% on volumes of 10.81M and 3.80M, respectively.
Sector-wide news included crude oil futures seesawing on a higher than expected weekly supply increase; encouraging data from Brazil pushing Petrobras and other Brazilian stocks higher; and a sentiment from BP and ExxonMobil that forecasts that today's drivers will not see electric cars outnumbering gasoline and diesel models in their lifetimes.
China Petroleum & Chemical Corp. saw its shares rise today after news that its plans to outflank the United States in the Mid-East region were released. More specifically, in a deal with Israel, China Petroleum booked rights to build an $8.5B export refinery to handle 400,000 barrels per day at Yanbu, on the kingdom's Red Sea coast. This location allows China Petroleum to sidestep the Strait of Hormuz, which Iran has threatened to block. Journalists have interpreted the move as an emerging "outline of a new energy infrastructure in the region, oriented primarily to China and other Asia consumers rather than to the West." If that sentiment comes to fruition, shareholders of China Petroleum may see future gains on the horizon.
Along with the positive news for shareholders of China Petroleum mentioned above, the company appears solid fundamentally. Its YoY quarterly revenue growth (31.00%), operating margin (5.17%), P/E (9.14), and P/S (0.28) all best industry averages. Further, the company's laudable ROE of 17.53% and low beta of 0.81 demonstrate management efficiency and stock-price stability. If future operations in the Mid-East continue to look like the above mentioned development, investors owning shares today should be sitting on a nice capital bounty.
Chevron's (NYSE: CVX) shares wavered in and out of the black today as investors appear to be leery of the company's ongoing arbitration with the country of Ecuador. Today's news highlighted Chevron going on the offensive, documenting collusion between the trial lawyers doing the suing and Ecuador's judiciary. If Chevron loses this case it may face up to $18B in damages payments.
Elsewhere, Brazilian prosecutors have filed a case following Chevron's recent spill of the country's coast. This could add another $11B in payments. Taken together, it seems as no surprise that investors were willing to sell their shares today.
I hold the opinion, however, that investors should not rush to sell their shares -- Chevron simply has too much working in its favor. From $15B in cash assets, to a 7.65 P/E, to a top decile 11.38% profit margin; the statistics display that this company is well run. While investors should keep an eye on the company's legal situation, I ultimately believe they should hold on to their shares. After all, Chevron increased their reserves in 2011 by 171% and developing projects could see that number grow to 2020.
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