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Chevron: It's Cheap But Doesn't Look Cheap

NEW YORK ( TheStreet) -- It's not unusual for investors to proclaim to anyone who cares to listen his or her favorite stock is cheap. But when that stock is also at a 52-week high, it's time to raise eyebrows at the logic.

Somehow, Chevron (CVX - Get Report), which fits this criteria, is still flying under the radar despite gaining more than 17% for the year to date.

Even though rival Exxon Mobil (XOM), which we talked about a couple of weeks ago, garners the lion's share of the media coverage, Chevron has never lost its status as a major oil company that consistently delivers solid profitability. It has consistently maintained one of the best balance sheets of any company in any sector.

But how is it possible, with Monday's close of $124.78, for Chevron to still be cheap?

Chevron didn't knock the cover off the ball this quarter. But given the broad weakness that has hit the entire sector due to weak oil prices, the company didn't have to. Management only needed to show that Chevron's production growth was still progressing. Even though revenue was down 6% year over year (as reported), Chevron still delivered where it mattered.

As disappointing as the revenue number sounds, the Street didn't flinch. Unlike the tech or financial sector, revenue details are not weighed upon too heavily among the energy bigwigs. Investors are more interested in production. Chevron was cheered for the company's 1% year-over-year production growth.

Here, too, Chevron's performance stands out, especially since Exxon just posted its seventh consecutive quarter of year-over-year production decline. Meanwhile, Exxon is still considered the leader in this sector.

Chevron had a 6% revenue decline compared to Exxon, which posted a sales decline of 12% -- I think this supports the idea that perhaps Chevron shares are undervalued. From the standpoint of operating margin, Chevron should command a higher P/E, all things being equal.

On a segmental basis, the Chevron's upstream business was far and away the bread winner this quarter despite upstream profits falling 4% year over year to $1.13 billion due to a combination of lower crude oil prices and higher operating costs.

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