A Chevron station

If you hold energy stocks in your portfolio, you should be getting nervous. The energy bulls have gotten carried away and propelled share prices beyond justification.

Since the beginning of 2016, the SPDR S&P Oil & Gas Exploration & Production ETF  (XOP - Get Report) and the SPDR S&P Oil & Gas Equipment & Services ETF  (XES - Get Report) have generated returns of 38.6% and 33.1%, respectively, compared to 12.3% for the S&P 500.

Energy prices have been rising, but the global oil glut shows resilience and most economists are calling for a recession in early 2017. Prices could easily tumble again, especially in a volatile political environment in which bad news seems to occur on a daily basis.

But you can still profit from the energy rebound without putting your portfolio at serious risk. Below we spotlight Chevron (CVX - Get Report) , a "Super Major" that's well positioned to weather the shocks we're likely to experience throughout 2017. Chevron shares were down slightly in late Thursday afternoon trading. 

Chevron is scheduled to report earnings on Friday, Jan. 27. The average analyst expectation is that earnings per share (EPS) will come in at 64 cents, an impressive gain from the EPS of 26 cents posted in the same quarter a year ago. Next quarter, EPS is projected to hit 97 cents, compared to a loss of 11 cents in the same year-ago quarter.

Analysts on average expect Chevron to generate earnings growth over the next five years of 26.11% on an annualized basis.

In large part, Chevron has kept its profits buoyant by wrangling the debt beast to the ground. That's in stark contrast to the red ink that many indebted energy companies continue to hemorrhage. Chevron's prudent management has been judiciously trimming CVX's portfolio of assets to weed out the under-performing holdings.

Chevron's total debt-to-equity (most recent quarter) stands at 30.81, significantly lower than the average of 43.6 for its industry.

As Chevron streamlines, reduces debt and cuts expenses, it's simultaneously plowing the freed-up capital into more productive ventures with higher margins. By keeping its powder dry during the long decline in oil prices, this exploration and production giant is now in superb position to exploit the energy price rebound.

One of Chevron's strongest advantages is diversification that provides a multiple revenue stream. With a market cap of $220.5 billion, the company wields a broad variety of assets, including liquefied natural gas, deepwater fields dotted worldwide, prolific high-quality shale plays in North America, and lucrative downstream operations, such as refining and retailing. Chevron's stable revenue and earnings from downstream assets help buffer the company from oil price gyrations.

Chevron shares have been soaring, racking up a 12-month gain of 35.85%, but there's still room for further capital appreciation. The average analyst expectation for a one-year price target on the stock is $125.88, a 7.6% gain from its approximate price now of about $117. Chevron's dividend yield is a robust 3.70%.

In an overbought energy sector that has become dangerously frothy, Chevron is a solid growth-and-income play.


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John Persinos is an analyst with Investing Daily. At the time of publication, he owned none of the stocks mentioned.