Form a fundamental standpoint, P/Es below 12 and P/S ratios near 1.0 for both corporations are remarkably favorable. The broader stock market is pushing valuations that defy common sense, yet enjoy the tailwinds of easy monetary policy, low rates, technical uptrends as well as relative strength.
I am not saying that XOM is destined to pop in a Santa Claus rally. It’s a valuation play in the Warren Buffett mold as well as a contrarian selection in an unpopular space. It may be below its 200-day moving average, but it even has a series of higher lows in 2014 – something that you cannot say about the broader energy play in XLE.
In truth, Chevron may be a little bit riskier and a little bit trickier. Yet it is still a high-yielding dividend aristocrat with an attractive valuation. What’s more, you could not ask for more cash on its balance sheet. If oil gets much uglier, it might be able to make strategic acquisitions in the oil and gas space. (They’d do that, of course, because they realize oil will eventually recover to more favorable levels (i.e., $75-$80 per barrel.)
Naturally, if I am dead wrong about every last aspect of the near-term or long-term future for the energy sector, I am able to reduce the risk of loss with stop-limit loss orders. Moreover, as the creator of the FTSE Multi-Asset Stock Hedge Index, I have yet another tool in the protection shed.