The Alpha Algorithm Targets an Energy Play

This week’s Alpha Algorithm targets its first recommendation in the sharply rallying energy sector.

Chevron Corporation (CVX) is the fifth-largest integrated energy company in the world. Headquartered in San Ramon, California, and conducting business in approximately 180 countries, this global leader operates in every aspect of the oil and natural gas industry, including exploration and production; refining, marketing and transportation; chemicals manufacturing and sales; and power generation.

Chevron Corporation (CVX) versus the S&P 500 YTD

Eight Top Investment Strategies Betting on Chevron Corporation (CVX)

1. Fundamental Strength

This is a top U.S. stock based on fundamentals measured by book value, cash flow, sales and dividends.

2. Small-Cap/Value Tilt

Selected using a multi-factor modeling approach, the stock is a smaller-cap or value stock designed to enhance portfolio risk/return characteristics.

3. Insider Sentiment

It is one of 100 equally weighted U.S.-listed large- and mid-cap stocks chosen based on trading in company stock by corporate insiders, price momentum and trailing 12-month volatility. Specifically, it looks at the increase in insider holdings.

4. Large-Cap Momentum

The stock is part of a major hedge fund’s systematic strategy that invests in large- and mid-cap U.S. companies with positive momentum and that rank in the top third of total return over the prior 12 months, excluding the last month.

5. Goldman Sachs’ Active Beta

The stock is selected according to four factors — value, quality, momentum and low volatility. These, in turn, are based on criteria including book value, sales and cash flow scaled by share price, profit/assets or return on equity (ROE), risk-adjusted returns and daily standard deviation of returns.

6. Large-Cap Growth

The stock is among the top 50 large-capitalization U.S. growth stocks generated through a rigorous 10-factor fundamental screening process.

7. Dividend Aristocrat

The stock is among those that have increased dividends for at least 25 consecutive years.

8. High Quality Stock

The stock exhibits positive fundamentals, including high return on equity, stable year-over-year earnings growth and low financial leverage.

Recommendation

Buy Chevron Corporation (CVX) at market today and place your initial stop at $108.00.

I am holding off on an options recommendation for Chevron at this time as the market seems oversold after its recent rise.

Portfolio Update

Raise your stop in Microsoft (MSFT) to $61.70 to lock in at least a 10% gain in the stock.

You already have a 10% gain locked in Berkshire Hathaway (BRK-B) with a stop price of $159.10.

Keep an eye on your position in Home Depot (HD), which is approaching double-digit-percentage gains as well.

Sincerely,

Nicholas A. Vardy