Chevron (CVX) poised to outperform going forward?

Chevron Corporation (CVX) is a top quality energy company with great management, a robust balance sheet, and solid earnings prospects. Chevron has $7B in cash, $44/share in book value compared with a $70 stock price, and a forward P/E of about 9.5. While waiting for any increase in share price the stock also does sport a healthy and relatively safe 3.9% dividend.

Chevron, along with Exxon Mobil (XOM) have largely not joined in the market rally this year. Chevron is actually down 5% YTD (through 8/24/09) and Exxon Mobil is down about 13% YTD (also through 8/24/09).

Unless one believes oil demand will be declining significantly over the next few years these stocks seem like a buy at these levels. Oil prices, although a significant component of earnings for these companies, is not the only factor to consider. Even if one sees a risk of oil slipping back into the $50s, that alone would have a smaller impact on Chevron's stock price than one might think. The correlation of CVX and XOM stock performance to the price of oil is rather poor.

Over the next 1-2 years, I believe CVX will outperform the broader market, and is a buy at current levels.