NEW YORK ( TheStreet) -- Previously, I have expanded upon the musings of Jim Cramer's CNBC show "Mad Money." Specifically, I shared my views on this Web site about Walgreen ( WAG) and CVS ( CVS ) and Nike ( NKE). Both times effectively mirroring Cramer's sentiment, but perhaps I expanded upon his one or two liners a bit.Today I would like to investigate a recent comment related to oil giants Exxon Mobil ( XOM) and Chevron ( CVX). The question was about XOM and Cramer's response was as follows: "I see no reason to be in Exxon. I'd rather be in Chevron." Once again, I basically agree with his statement. However, indicating that there's "no reason to be in Exxon" seems a touch oversimplified. What if one had a low cost basis in XOM and the resulting taxes and transaction fees offset the implied advantage of CVX? Or perhaps you believe that the Chevron Ecuador lawsuit will turn out worse than anticipated. All I'm saying is that one or two line statements likely need both clarity and context. Instead, I believe Cramer actually meant something along the lines of: "Both XOM and CVX are great companies; yet, I believe that CVX presently provides a better investment opportunity." Perhaps I'm mistaken, but in any event it's always useful to dig into the underlying reasoning behind the suggestions. Below I have included the fundamental analyzer software tool of F.A.S.T. Graphs to demonstrate Exxon Mobil's operating results for the last 15 years. Here we see that -- despite a noticeable dip in earnings during the last recession -- Exxon has still been able to maintain a robust pace of earnings (orange line) at just over 12% a year. In addition, we can see that the dividend (pink line) has been both increasing and sustainable.
Note that return results trail the business results of Exxon because of P/E compression. That is, in 1999 Exxon was trading at about 27 times earnings against today's much lower multiple of 11. Despite this headwind, both the business and return performance of Exxon were quite impressive over this time period.
Moving to Chevron, we see a similar story. Instead of growing earnings by 12% a year over the last decade and a half, CVX was able to increase its business results by about 15% a year. In addition, Chevron's management also demonstrated a strong propensity to increase its dividend through the years. Much in the same manner as Exxon, Chevron's total return results were quite strong. In fact -- at roughly 9.3% a year -- they were even stronger. Yet, also notice that the same P/E compression caused a Chevron investor's total return to trail the business results of the company. Specifically, the P/E dropped from about 28 to today's mark of about 10. Still, the business performance and return results of both companies has been quite solid. So while one might suggest that CVX has had better return and business results in the past, it hardly seems fair to indicate that XOM has been a subpar partnership. In addition, one might point to things like Exxon's superior historic buyback program as a less talked about advantage. For example, as seen below, Chevron has been able to decrease its common shares outstanding from about 2.14 billion in 2003 to today's mark of about 1.93 billion, roughly a 1% yearly decrease. However, during the same time Exxon was able to decrease its common shares outstanding from about 6.57 billion in 2003 to today's 4.4 billion mark, or roughly a 4% yearly decline. Moving forward, one may believe that Exxon's ongoing share repurchase program could prove more effective than Chevron's program. Interestingly, both companies have an open-ended platform for buying back shares. But, of course, assessing whether a company is fit as an investment partnership is more about the future than the past. Although history can serve as an important foundation, it's fundamental to consider a company's ongoing prospects. A complete view into each of these companies is beyond the scope of this article, but luckily F.A.S.T. Graphs provides a reasonable starting place.
Today, if we look at the comparative valuations of two companies, XOM is trading at a P/E of around 11, while CVX is trading at a P/E around 9. From the onset, there at least appears to be a valuation bias towards CVX. Yet, it is important to note that XOM has traded with a "normal" P/E around 15 during the last decade and a half, while CVX has been trading with a "normal" P/E around 12 over the last 15 years. Below we see that 24 analysts have come to a consensus estimated earnings growth rate of 3.2%. By turning to Zack's as a double check, one would find a similar estimate. In turn, using default estimates and an ending P/E of 15, the F.A.S.T. Graphs Estimated Earnings and Return Calculator projects a possible annualized return of about 11%. It's important to remember that this is a calculator only, but the projections appear sensible.
In looking at the Estimated Earnings and Return Calculator for Chevron, we see 14 analysts reporting to S&P who come to a consensus estimated earnings growth rate of 6.8%. Once more checking the consensus reporting by Zack's we find a similar number. Thus, the higher growth rate, higher initial yield and same ending P/E leads to a possible five-year estimated annual return of about 16%. Interestingly, a P/E of around 12 for CVX still might place it slightly ahead of the assumptions made for XOM with an ending P/E of 15. In sum, I agree with Cramer in indicating Chevron presently appears to be a slightly more attractive investment than Exxon. However, that's not to say that XOM isn't worth a further look as well. After all, it's hard to discount a company that's been growing earnings by double digit growth rates and has increased its dividend for 31 straight years. For that matter, it's hard to discount a company with a baseline possible estimated total return over 10% as well. Whether your investment of choice is CVX, XOM, a different oil company or a business in a different sector altogether, the point is that investing preferences change in tandem with valuation changes. At the time of publication the author was long CVX and WAG. This article was written by an independent contributor, separate from TheStreet's regular news coverage.