CVX: Fueling More Growth

Do you have any idea how much we were paying for a gallon of gasoline in the month of January, 2009 when Obama began his tenure as president? That month would also begin the nosedive for stocks from Dow 9000 to Dow 6600 by early March. With that understood, we still had to buy gasoline in spite of all the financial chaos extant at the time. Your guess is???

The answer is under $2.00 per gallon! Of course the major oil companies like almost all other things affected by the economy -- especially stocks -- were selling at bargain prices during that period of economic despair. That despair amazingly (for me anyway) still lingers today, almost three years hence! In all that time the despair did not stop Chevron (CVX) from rising over 90% (from $58 per share) to where it stands today at $103. Things change.

For CVX, the key is its excellent balance sheet and income statements. CVX is expected to conclude fiscal year of 2011 with earnings around $13.75 per share. That is a 32% gain over fiscal year 2010's results, which were excellent in their own right.

Buddy Ryan used to say of his wide receiver Cris Carter that "all he does is catch touchdowns." Well, all CVX does is improve their bottom line. But like Carter who was not appreciated by Ryan and who is inexplicably not in the NFL Hall of Fame (yet!), I think that CVX is very under-appreciated by the market.

CVX began 2011 trading around $91. The fact that the stock is barely up 10% for 2011, while growing earnings over 30%, almost qualifies for Wall Street's version of "Believe It or Not!"

Let's further review the fundamental and technical case with Jill and Scott before we get to the trade:



I will toss into the technical mix that I have CVX coiled. Thus, I now expect higher short-term volatility for CVX over the next several weeks as well as an opportunity to trade CVX options!

Given the fact that since volume has been on the lighter side since summer and the market is ripe for a bit more selling due to it being short term overbought, I am expect a bit further downward pricing for CVX over the next few days and lower prices than on your current screen used for this set up. I like CVX to trade higher once the market gets balanced again since it's now overbought short-term.

This trade is medium in risk because it is fully hedged and medium in reward potential because it is hedged, a combination that caps reward. Consider a vertical call spread on CVX expiring in March.

Trades: Buy to open 3 CVX March 105 calls for $3.80 and sell to open 3 CVX March 110 calls at $2.00.

The total risk for the spread is $1.80.

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At the time of publication, Skip Raschke, Jill Malandrino and Scott Redler held no positions in the stocks or issues mentioned.