Before this purchase, I have 15 shares in my portfolio on a cost basis of $115 per share, and another 85 shares with the unit cost at $108. This new purchase averages down my CVX cost to $107.63 per share.
Energy sector in recent months has been the most troubled sector with oil price continues to be lower. As many fellow DGI investors, I have confidence in the long-run prospect of these oil companies, so I treat the current market prices as a perfect opportunity of market entry or cost average down. Here is my previous analysis on CVX.
A very respectable DGI expert Chuck Carnevale wrote an excellent article on Seeking Alpha, The Energy Sector - Risk Or Opportunity? In this article, he wrote,
The current collapse in oil prices has brought most of the S&P 500 energy constituents to historically low valuations. Valuation, however, is only half of the equation, the other half is future earnings and dividend growth. Consensus earnings estimates for most S&P 500 energy constituents is expected to be weak to significantly lower for 2015. Earnings growth estimates are also suspect for 2016 for most energy companies. However, beyond 2016 most estimates tend to take a brighter view about long-term earnings growth for the energy sector.
Especially for Chevron, he said following, to which I totally agree.
Looking to the future, the consensus of 23 analysts reporting to S&P Capital IQ forecast a significant earnings drop for Chevron this fiscal year ending December 2015. If the estimate proves correct and price was to follow, current investors could expect in excess of a 30% short-term loss in the short run. However, it should also be acknowledged that these same analysts expect a moderate dividend increase for 2016.
On the other hand, when taking a slightly longer-term view, 17 analysts expect earnings to dramatically recover in fiscal 2016 ending December 31, 2016. Additionally, there are three analysts that expect earnings to grow an additional 12.47% in fiscal 2017. If those estimates prove correct and stock price were to follow, investors with a longer-term view could expect a steadily growing dividend income and a reasonable long-term rate of return.
I plan to make another small purchase on CVX if it falls to $100 - $98 range.