CVX Preview: Is Downstream Up the River?

Chevron (CVX - commentary - Cramer's Take), the integrated oil company, is scheduled to report second-quarter 2008 results before the market opens on Friday.

The company is expected to earn $3.03 per share on revenue of $92.41 billion. In the year-ago quarter, Chevron earned $2.27 per share on revenue of $50.31 billion. The revenue growth could be directly related to the rise in crude oil and gasoline prices.

As we saw from today's disappointment at Exxon Mobil (XOM - commentary - Cramer's Take), the problems are with the downstream (i.e., refining and retail) operations. The upstream (i.e., exploration and production, or E&P) businesses are performing much better. We should expect much of the same from Chevron.

Even Marathon Oil (MRO - commentary - Cramer's Take), which also reported today, said that the refining business is so poor that it is considering splitting into two companies, essentially one representing the upstream business and one representing downstream business.

If the E&P business is doing so well, isn't that sending us a message to stick to the oil and gas service companies rather than the integrated oil companies? I believe that is the key to the energy market. As Larry Kudlow says every night, "Drill! Drill! Drill!"

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At the time of publication, Rothbort had no positions in the stocks mentioned, although positions can change at any time.

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational Web site TheFinanceProfessor.com.

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com. Scott appreciates your feedback; click here to send him an email.