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Exxon Mobil, Chevron May Be Best Bets

Exxon and Chevron, with the highest ratings in the industry, will stand apart from the pack if oil prices keep falling.

Exxon Mobil

(XOM) - Get Exxon Mobil Corporation Report



(CVX) - Get Chevron Corporation Report

, the only two "big oil" companies whose shares are rated "buy" by Ratings, may hand investors the best returns as the price of crude plummets.

Marathon Oil

(MRO) - Get Marathon Oil Corporation Report



(SUM) - Get Summit Materials Inc. Class A Report



(HES) - Get Hess Corporation Report



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(BP) - Get BP p.l.c. Report


Royal Dutch Shell




(PBR) - Get Petroleo Brasileiro S.A.- Petrobras Report

are tagged with "hold" recommendations, held back by the volatility of their stock prices and depressed profits.

The price of crude oil crashed from almost $150 a barrel in July 2008 to the $30s in late February. Crude oil in New York declined as much as 5% today, the most in two weeks, hurt by the dollar's advance and a drop in stock markets in the U.S. and Europe.

Still, the Organization of Petroleum Exporting Countries has agreed to production cuts of 4.2 million barrels a day since September, propping up prices. OPEC didn't further curb output at a March 15 meeting. The group will convene again May 28.

The consensus among analysts is that Exxon Mobil's earnings per share will be cut in half this year, tumbling from $8.69 in fiscal 2008 to $4.35. The forecasts are worse for Chevron, which analysts estimate will take a 58% hit, dropping from $11.67 to $4.85. But as the economy starts to expand, expected by some analysts to occur close to the end of the year, Exxon Mobil's per-share net is expected to recover 44% next year to $4.25 while Chevron's is forecasted to vault 56% to $7.55.

Although Exxon Mobil's "reward," "risk" and "overall" marks are one to two notches higher than those earned by its smaller competitor, a compelling case can be made that Chevron makes a better choice as a "value" investment.

As can be seen in the accompanying table, Chevron's price-to-earnings multiples of 13.3 and 8.6 based on projected earnings for the current year and next year are lower than those for Exxon Mobil. Priced at 1.5 times book, Chevron is almost half that of ExxonMobil's.

From a stock-price perspective, Exxon Mobil was in the mid-$90s in May 2008 and retreated to the low $60s in early March 2009 before recovering to the $70 range. Chevron topped $100 last May and slipped to the high-$50s a few weeks ago before climbing to the $70s. Ratings evaluation model quantitatively analyzes a company's valuation metrics, current financial situation and consensus expectations of future earnings growth. A broad range of fundamental and technical data is condensed into a single risk-adjusted composite mark. Grades for most companies range from A-plus to E-minus, with bankrupt firms assigned marks of F.

Richard Widows is a senior financial analyst for Ratings. Prior to joining, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.