There are numerous US stocks that are bearing losses due to the uncertainty regarding the fiscal cliff, and Chevron Corporation (CVX, Financial) is no exception to that. Significant declines are being observed in the market performances of a number of market leaders. Along with CVX, the stocks that have lost significant value are Exxon Mobil (XOM, Financial) and Hewlett-Packard (HPQ, Financial). At the time of this edition, Exxon Mobil fell by 1.14% and HP fell by 1.85%. This decline in the stock prices raises serious concerns for short term investors. The declining stocks are deteriorating the confidence of investors in the stocks, rendering the scenario even worse. The worsening situation makes it difficult to deduce when the stocks will recover from the decline.
Although some of the economic data exceeded expectations of the economists, this did not have any positive influence on the stocks. Pending home sales were the highest in around three years in the month of November, and the monthly gain increased by 1.7%, topping the expectations of 1.2% incline.
Despite the declining stock prices, some experts are highly pessimistic and view this decline as an opportunity to pick up stocks at a lower price. One such expert is Laura LaRose, director of portfolio management for investment and wealth management firm Glenmede. Ms. LaRose said, “People had the assumption that since things didn't go well in August 2011 with the inaction on the part of the politicians, that that would have been enough of a warning that this time, they wouldn't wait until the last minute.”
Chevron’s Market Performance
Chevron has shown a highly volatile market performance during the year. The company’s main operations include provision of administrative, financial, management, and technology support to firms that are engaged in petroleum, chemicals, mining, power generation operations and energy services. The stocks of the company are significantly influenced by the oil and gas industry.
The shares of the company moved upwards at the start of the year but numerous setbacks caused decline in the value. The following chart represents the value of Chevron’s stock for the past quarter:
It can be observed from the chart that Chevron’s stock witnessed a steep decline during the past quarter. Although the stock value recovered by a small extent, the recent concerns regarding the prospective economic condition have set the stock value on a downward path again. Whereas on one hand, the falling stock prices are being interpreted as a loss to the short term shareholders, on the other hand, it is being viewed as a potential opportunity to buy the stock.
Brazil Spill Case
The concerns regarding the fiscal cliff are industry-specific, causing a decline in all the related companies; however, there are some factors that are specific to Chevron. One such factor is the Brazil spill case which has the potential to cause a significant cash outflow from the company. Some prosecutors are seeking around $22 billion with regard to the spill case; however, it was recently announced by Chevron that the company is willing to pay $144 million to settle the lawsuits over the oil spill. This settlement can reflect badly on the financial statements of the company and it can also have a negative influence on the profitability of the company. Therefore, this factor also added towards the decline in Chevron’s stock price causing it to be added to the list of the stocks that lost the most value.
Oil Prices
Since Chevron is at the center of the infrastructure of oil and gas industry, any change in the oil price directly influences the profit margin of the company. Even though the production of oil products is expected to rise in the United States, the deteriorating situation of the global economy can cause a decline in oil prices. Therefore, despite high production, the low prices will cause a reduction in the profit margin of all the companies operating in the oil and gas industry.
Therefore, after the analysis of multiple factors related to Chevron, in my opinion, investors should hold the stocks of the company. The rationale behind this recommendation is: selling the stock at a lower price can cause significant loss to the investors and there is insufficient level of certainty to buy the stock. Although some experts view this as an opportunity, it may not be the optimum decision to invest in Chevron during the uncertain market performance of the company.
Although some of the economic data exceeded expectations of the economists, this did not have any positive influence on the stocks. Pending home sales were the highest in around three years in the month of November, and the monthly gain increased by 1.7%, topping the expectations of 1.2% incline.
Despite the declining stock prices, some experts are highly pessimistic and view this decline as an opportunity to pick up stocks at a lower price. One such expert is Laura LaRose, director of portfolio management for investment and wealth management firm Glenmede. Ms. LaRose said, “People had the assumption that since things didn't go well in August 2011 with the inaction on the part of the politicians, that that would have been enough of a warning that this time, they wouldn't wait until the last minute.”
Chevron’s Market Performance
Chevron has shown a highly volatile market performance during the year. The company’s main operations include provision of administrative, financial, management, and technology support to firms that are engaged in petroleum, chemicals, mining, power generation operations and energy services. The stocks of the company are significantly influenced by the oil and gas industry.
The shares of the company moved upwards at the start of the year but numerous setbacks caused decline in the value. The following chart represents the value of Chevron’s stock for the past quarter:
It can be observed from the chart that Chevron’s stock witnessed a steep decline during the past quarter. Although the stock value recovered by a small extent, the recent concerns regarding the prospective economic condition have set the stock value on a downward path again. Whereas on one hand, the falling stock prices are being interpreted as a loss to the short term shareholders, on the other hand, it is being viewed as a potential opportunity to buy the stock.
Brazil Spill Case
The concerns regarding the fiscal cliff are industry-specific, causing a decline in all the related companies; however, there are some factors that are specific to Chevron. One such factor is the Brazil spill case which has the potential to cause a significant cash outflow from the company. Some prosecutors are seeking around $22 billion with regard to the spill case; however, it was recently announced by Chevron that the company is willing to pay $144 million to settle the lawsuits over the oil spill. This settlement can reflect badly on the financial statements of the company and it can also have a negative influence on the profitability of the company. Therefore, this factor also added towards the decline in Chevron’s stock price causing it to be added to the list of the stocks that lost the most value.
Oil Prices
Since Chevron is at the center of the infrastructure of oil and gas industry, any change in the oil price directly influences the profit margin of the company. Even though the production of oil products is expected to rise in the United States, the deteriorating situation of the global economy can cause a decline in oil prices. Therefore, despite high production, the low prices will cause a reduction in the profit margin of all the companies operating in the oil and gas industry.
Therefore, after the analysis of multiple factors related to Chevron, in my opinion, investors should hold the stocks of the company. The rationale behind this recommendation is: selling the stock at a lower price can cause significant loss to the investors and there is insufficient level of certainty to buy the stock. Although some experts view this as an opportunity, it may not be the optimum decision to invest in Chevron during the uncertain market performance of the company.
