NEW YORK (The Deal) -- If you're looking to pick up oil and gas stocks now that oil prices seem to be stabilizing around $60 per barrel, most industry watchers would agree that the top super majors, ExxonMobil (XOM) and Chevron (CVX), would be good for any portfolio. The question is, which one?
It's a tough call, so let's turn first to Fadel Gheit, a longtime oil and gas watcher at Oppenheimer & Co. Full disclosure: The Cairo University-trained chemical engineer spent six years at Mobil Corp., but it was well before it was acquired by Exxon in 1998 for $80 billion.
Both ExxonMobil and Chevron were part of John D. Rockefeller's Standard Oil before the U.S. Supreme Court ruled that it was an "unreasonable" monopoly and it was broken up into 90 independent companies, including Standard Oil of New Jersey (which became Exxon), Standard Oil of New York (Mobil) and Standard Oil of California (Chevron).
ExxonMobil, led by CEO Rex Tillerson, is larger than Chevron, with a market capitalization of $363.7 billion. Chevron, headed by John Watson, has a market capitalization of $197.5 billion.
Gheit rates both stocks as market perform, although he notes that both have lagged the S&P 500 index in the last 12 months. He said Chevron is cheaper based on various ratios, including price-to-earnings (11 vs. ExxonMobil's 13), price-to-cash flow (6.76 vs. 8.77) and enterprise value-to-EBITDA (7 vs. 7.92). It also has a higher dividend yield: 3.9%, vs. ExxonMobil's 3.4%.
But ExxonMobil is stronger financially and is the only triple-A credit-rated company in the industry, Gheit notes. He said that the industry giant is likely to take advantage of the oil downturn and make a large acquisition using treasury shares, which amount to 3.7 billion and are worth around $320 billion.
"We believe ExxonMobil will likely capitalize on its competitive advantage by making a large strategic acquisition in the current oil downturn to make up for the XTO acquisition, which proved to be disappointing," he wrote in a note on Tuesday.
Like their smaller rivals, both Chevron and Exxon are shedding assets to raise cash and cut costs, albeit quietly. In the first quarter, ExxonMobil sold its South Texas King Ranch midstream assets to Energy Transfer Partners (ETP) for $370 million. And Chevron plans to divest $15 billion in assets through 2017, up from its original target of $10 billion.