Chevron rallies ahead of earnings but shares still look slick

When energy giant Chevron (CVX) reports earnings Friday, they'll probably look a lot like fellow Dow component Exxon Mobil's (XOM) results Thursday. Earnings per share are expected to plunge more than 60 percent as the global recession took its toll on prices and demand.

It's never ideal to mess around with stocks during earnings season -- Chevron popped about three percent Thursday -- but we're fairly bullish on big integrated oil and gas companies these days. The main reason is pretty obvious: Oil is back at about 80 bucks a barrel and will likely go higher as the global economy improves. (Let's face it: Until we come up with a viable alternative, the energy companies have us by the throat.)

Even more important than the great macroeconomic tailwind at its back, Chevron's stock is compellingly priced. Shares offer about a 50 percent discount to the broader market on a forward earnings basis, while being about 30 percent less volatile.

And then there's the dividend, currently kicking off a yield of 3.6 percent. Add that to analysts' average price target and you get an implied upside of 12 percent in the next year or so. Unless the global economy hits a double-dip recession, that upside seems easily achievable.

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