Exxon Better Value Than Chevron

Dan Dicker says the big integrated oil companies are less levered to the price of crude oil.
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NEW YORK (TheStreet) - Oil prices keep whipping around and readers want to know how fast-moving crude prices will affect their stocks. It's been a very long time since I looked at the big integrated stocks, and I'm going to tackle the two biggest - ExxonMobil (XOM) - Get Report and Chevron (CVX) - Get Report - and see if we can make some connections between the predictions I have for the price of oil and the predictions I can make for the share prices of these two behemoth U.S. oil companies.

Oil Value Stock: Exxon

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Investors want to believe that the price of crude oil will be directly translated to the share prices of the big U.S. integrated oil companies. In truth, the big integrated stocks like

ExxonMobil

and

Chevron

had a much stronger correlation to the price of the crude barrel before 2008 than they have now. Since the big deleveraging of assets and oil in the fall of 2008 and early 2009, there has been less direct relationship with crude prices and these stocks. It has been the financials and technology stocks that have led the big recovery in stocks while energy has lagged a bit - this in spite of a crude price that has basically tripled since the lows of March 2009.

So, understanding the big integrated oil companies requires us to do more than just try and predict the future price of crude (which, is definitely going up!). Let's take the two biggest and look at them individually and relatively.

ExxonMobil

is the big boy on the block and still has some of the most compelling leadership in the industry. I recall seeing Lee Raymond,

Exxon

CEO until 2005, appearing at a congressional inquiry into oil prices. When asked by California Senator Barbara Boxer about some outrageous

Exxon

quarterly profit posting, Raymond looked at her with his steely eye and responded, "Senator, I have no interest in what the company made last month - I am working on assuring our profits five years from now!"

That's always been

ExxonMobil

- always planning ahead.

Exxon

sports the largest portfolio of exploration ever in their history. It is also the key to understanding their acquisition of

XTO

(XTO)

, an admittedly expensive move into natural gas. I would put my money on

Exxon

's ability to see the energy future clearly. They have a history of doing that better than anyone else. In addition,

ExxonMobil

's return on equity is always the best in the patch and they have the kind of balance sheet that could lead to a significant stock buyback at any moment.

Let's look at

Chevron

now, a subtly different oil company. Their fortunes are a little more correlated to crude prices and it's shown in their stock price - they've far outperformed

Exxon

this year, for example. They recently surprised in their guidance for the rest of 2010, expecting better profitability than even the fourth quarter of 2009, when they pocketed over $4 billion.

Chevron

is also more dependent upon downstream refining revenue than some other integrated oil companies. They managed to squeeze an $82 million profit on refining this quarter, when downstream reports from most of the other refiners took losses. They have managed to maintain profitability by cutting workers and slowing refinery output - a brilliant job. Of course, they still sport a much neater dividend than most other integrated companies, still over 3.4% compared to

Exxon

's 2.4%.

Now the question - Which do I prefer? Actually, I've been less enthusiastic about the integrated stocks than other sectors in energy. Chevron was a top stock of mine in 2009, where I made a terrific return before selling out toward the end of last year. Recently, I recommended

Exxon

for the first time - and here's why: The street really hated the

XTO

acquisition and pummeled

ExxonMobil

shares from over $70 dollars to near $64 in Feb. That represented to me a value that I didn't think I was likely to see again soon.

Another idea that draws me to

Exxon

over

Chevron

right now. Despite the subtle differences in these companies, they have a very high correlation in share prices to each other. Recently, however,

Chevron

shares have outrun

ExxonMobil

shares. I see some short-term reasons for this but over the long haul expect a historical mean reversion to reestablish correlation between these two oil monsters. Even if I don't like integrated companies as a sector, I'd still rather have

Exxon

for that reason alone and expect it to outperform

Chevron

in the medium to long term.

Of course, other integrated companies will have different stories -- but you need to know that it is impossible to throw them all into a sector pool and even less likely now that they all will respond directly to crude prices equally. You need to do much deeper analysis before choosing one over the other and finding value in this very deep and complicated sector.

Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 20 years' experience. He is a licensed commodities trade adviser. Dan's recognized energy market expertise includes active trading in crude oil, natural gas, unleaded gasoline and heating oil futures contracts; fundamental analysis including supply and demand statistics (DOE, EIA), CFTC trade reportage, volume and open interest; technical analysis including trend analysis, stochastics, Bollinger Bands, Elliot Wave theory, bar and tick charting and Japanese candlesticks; and trading expertise in outright, intermarket and intramarket spreads and cracks.

Dan also designed and supervised the introduction of the new Nymex PJM electricity futures contract, launched in April 2003, which cleared more than 600,000 contracts last year alone. Its launch has been the basis of Nymex's resurgence in the clearing of power market contracts over the last three years.

Dan Dicker has appeared as an energy analyst since 2002 with all the major financial news networks. He has lent his expertise in hundreds of live radio and television broadcasts as an analyst of the oil markets on CNBC, Bloomberg US and UK and CNNfn. Dan is the author of many energy articles published in Nymex and other trade journals.

Dan obtained a bachelor of arts degree from the State University of New York at Stony Brook in 1982.