I became a shareholder of Chevron Corp (NYSE: CVX) when it acquired the former Texaco, which I believe was the first stock I ever bought. I was fresh out of business school and made an investment in Texaco’s dividend reinvestment plan, and I’m happy to report that I literally make more in dividends every year than my original investment. I expect to pass the whole thing on to my kids, hopefully many years from now with the account at a much higher level.
For the broader market, we’ve long followed a concept we call the “volatility smile.” Simply put, broader stock market volatility is high early in the stages of a bull market, falls to low levels in the middle of a major rally and then rises again in the latter stages of a bull market. And, of course, volatility usually rises sharply during a bear market.
Even in a bull market that’s gone this high for this long, value and opportunity can be found. Here are two energy companies that offer strong businesses but haven’t yet convinced other investors of their full worth.
Energy politics aren’t just a US phenomenon affecting US people and companies. These Canadian and Australian companies are finding opportunity as they push forward with business plans in times of low prices and challenging politics.
We understand investors’ pessimism toward MLPs. Including distributions, the Alerian MLP Index has performed poorly this year. Although sentiment toward midstream MLPs remains weak, the doom and gloom gives savvy investors an opportunity to lock in above-average yields on high-quality names that stand to benefit as US onshore oil and gas production takes market share over time.
Our bullish outlook for the energy and financial sectors support higher buy targets for three of our Wealth Builders. We also swap our lone consumer-discretionary position for a name that offers a better risk-reward proposition.
The break-neck volatility of the past few years and the likelihood of shorter cycles in the energy sector argue for diversification into secular growth stories that depend less on commodity prices and timing your entry and exit points.
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