An incredible opportunity for safe income in oil and gas

From Justin Brill, Editor, Stansberry Digest:

Regular Digest readers know we’ve been covering the crash in oil prices…

In short, surging shale oil production here in the U.S. – combined with higher than usual production in Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries (“OPEC”) – have caused a huge “glut” of oil around the world. And prices have plunged.

The price of West Texas Intermediate crude oil (the U.S. benchmark) has fallen from more than $100 per barrel last summer to less than $50 per barrel today. This has crushed the shares of oil producers and many other stocks in the sector.

But the news isn’t all bad…

As we’ve mentioned, lower prices have benefited some energy companies, like refiners and oil shippers. And they could be creating a surprising opportunity in one “blue-chip” oil producer.

Last month, we mentioned oil giant Chevron had gone “on sale.” As we wrote in the June 16 Digest

Today, the oil giant is even cheaper than Wal-Mart, trading at an EV/EBITDA ratio of 6.6. (Porter’s team says that as a rule of thumb, an EV/EBITDA ratio lower than 10 is considered cheap.) Its price-to-earnings ratio sits at 11 – a staggering 43% discount to the S&P 500.

Not only was the stock cheap, but its dividend yield had risen above the important 4% level…

As we noted, Chevron has increased its dividend every year for the past 27 years, making it a member of the elite “Dividend Aristocrats.” This 4%-4.5% dividend level has acted as long-term “support” for the share price over the past 20-plus years. In other words, whenever its dividend has moved above this level, shares have rebounded not long after.

Since then, shares have fallen further, along with the price of oil, and the company is even cheaper today.

The stock now yields a huge 4.7% dividend, and new research from our colleagues Steve Sjuggerud, Brett Eversole, and Rick Crawford of True Wealth Systems suggests that an incredible opportunity is now approaching.

As they wrote in last week’s True Wealth Systems Market Extremes

Today’s extreme is in oil and gas giant Chevron (CVX). After falling 26% in the past year, this company is now extremely oversold… We can see this by looking at Chevron’s weekly relative strength index (RSI).

The RSI takes a company’s recent stock gains versus its recent losses and builds them into a 0-100 index. A low RSI shows an oversold opportunity… which often leads to a move higher in prices.

Chevron’s latest weekly RSI is at an extremely low reading of 29. That means investors are selling at a record pace. And when that reverses, we could see big gains in Chevron.

According to their research, investors have only been this bearish on the company five times in the past 35 years. And history says a huge rebound is likely…

These five trades led to double-digit returns within a few months, on average. And a year later, the company bounced 27%, on average. That’s a huge one-year return!

Now, Chevron is still in oversold territory. So we don’t recommend buying it today. But we’ll keep an eye on this stock as we monitor oil and gas prices going forward. Once an uptrend emerges, Chevron could offer double-digit returns within just a few months.

As they noted, they’re NOT buying just yet. They’re waiting for the RSI to reverse and for an uptrend to begin.

But once it does, investors could have the rare opportunity to buy a “Dividend Aristocrat” yielding close to 5% with the potential for quick double-digit gains.

× Subscribe to Crux
Want more posts like these?
Like us on Facebook?
Crux Contributors