Why Stocks Of Chevron Corporation, Exxon Mobil, Royal Dutch Shell, And ConocoPhillips Should Be Avoided
Bidness Etc looks at why Barron’s Asia advises new investors against buying stocks of the four Big Oil companies, namely, Exxon, Chevron, Shell, and ConocoPhillips
By: MICHEAL KAUFMAN
Published: Feb 18, 2015 at 6:36 am EST
Extracts
Crude oil price have dramatically decreased more than 50% since June 2014. Amid the low-price scenario, Barron’s Asia believes that new investors should avoid placing their bets on the four Big Oil companies, comprising, Royal Dutch Shell plc (ADR) (NYSE:RDS.A), Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), and ConocoPhillips (NYSE:COP).
Barrion’s Asia terms these stocks as the most defensive energy stocks mainly due to minor changes in the value of these stocks since mid-October. The West Texas Intermediate has fallen more than 35% over the same period.
Due to the defensive nature of these stocks, it is believed that new money must not be invested into these stocks. Any uplift in the crude oil price may offer a little upside on these stocks. On the contrary, if oil price remains at the current level or falls, the stocks of these companies might be vulnerable and may even experience a decline throughout 2015.
These companies will face a tough challenge in the upcoming months. The capital spending costs have increased sharply and crude oil price is at a low, however, overall global energy demand is increasing slowly. As reported by Barron’s Asia, the global energy demand is growing at about half the rate of the world’s Gross Domestic Product.
Although these companies maintain adequate dividends, these dividends are not expected to be funded from the free cash flow of the companies. They are either to be funded by debt or divestment of assets.
Shell is expected to finance all of its $12 billion dividends through debt.
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