New Trade for October 1st, 2020

Welcome to Q4.  Futures are pointing to a higher open this morning for all major indices.  All three benchmarks logged strong advances in yesterday’s session, their fourth positive session in the past five.  But it wasn’t enough to make up for the steep losses from earlier in the month, making September the first negative month since March.  The S&P 500 lost 4.64% in September, the Dow saw a 3.02% loss and the Nasdaq slid 6.47%.  

Energy has been the worst performing sector this year.  Oil prices have declined nearly 32% YTD, while the Energy Select Sector SPDR Fund (XLE), which tracks energy stocks, has lost nearly 50%.  Today we’ll highlight one big opportunity within this very, very beaten down sector.  

Oil titan, Chevron (CVX) is down more than 40% for the year. Some analysts say CVX stock has moved back to a price where risk/reward is attractive.  Considering the resilience of energy demand and the existing possibilities for merger activity if key stocks stay low, investors with longer-term time horizons might want to consider CVX at these levels.  

Keep in mind, a significantly bullish turn may not come for CVX until the hefty oil-inventory surplus shrinks.  U.S. petroleum stocks totaled 1.4 billion barrels in the week ending Sept. 18, according to the Energy Information administration.  Oil demand is not expected to return to pre-pandemic levels until at least year’s end.  But with Chevron’s recent purchase of oil driller Noble Energy, which has both U.S. and international operations, CVX is primed for expansion.  Not to mention the 7.17% dividend yield CVX investors enjoy.