Energy was the worst performer in 2014, without question.

But having said that, some great companies within the sector withstood most of the effects of oil’s big price drop in the second half of last year.

As I wrote in January, these companies – and energy as a whole – have a real shot at putting in the best performance for 2015.

[ad#Google Adsense 336×280-IA]If you’re not in the energy space yet, it’s not too late.

But you better hurry, because this rocket is about to leave the launch pad…

Oil Heavyweights Trading at a Bargain

Two of the biggest players in the space are Exxon Mobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX).

Both are big, multinational oil and gas companies that have been around for decades.

Not surprisingly, shares of Exxon Mobil and Chevron are down since last July.

That drop translates into a loss in market capitalization of about $70 billion for Exxon Mobil… and about $47 billion for Chevron.

This is only a temporary development, of course. Shares are already in motion after both companies reported earnings last week.

As you can see above, Exxon Mobil’s price continued to rally higher all week. Meanwhile, Chevron tanked on Friday.

What’s the difference?

On Thursday, Exxon Mobil reported $1.17 net earnings per share (EPS). Despite representing a 46% year-over-year drop, the number actually beat consensus estimates. (This was thanks to lower tax rates combined with improving results in the company’s upstream and downstream sectors.)

Chevron also reported better-than-expected Q1 earnings. EPS came in at $1.37, well above consensus estimates of $0.74 per share. However… it was well below Chevron’s Q1 2014 earnings of $2.36 per share.

Weak cash flow, coupled with the company’s decision to not raise the dividend in Q2, is keeping shares low.

So Which Company Is the Better Buy?
Frankly, I think they’re both bargains right now. Exxon Mobil and Chevron are stalwarts of the energy business, and have been for decades.

At the moment, Chevron pays a slightly higher dividend (3.93%) than Exxon Mobil (3.29%). But with Chevron opting to leave its dividend as-is for now, income investors are rightfully anxious.

There is some concern in my mind, too, regarding dividend coverage ratios. At 2015’s projected EPS totals – and at current dividend rates – Exxon Mobil’s dividend coverage ratio is about 1.3. Chevron’s is only 0.9.

The reason Exxon Mobil’s coverage ratio is higher is it’s a huge cash-generating machine. It uses some of that cash to increase its quarterly dividend. In fact, Exxon Mobil has been paying uninterrupted annual dividends for 100 years.

It’s raised them every quarter for the last 31 years.

Which one would I buy? I favor Exxon Mobil for one big advantage it has over Chevron… its purchasing power.

For starters, Exxon Mobil’s credit rating is higher than Uncle Sam’s. Plus it’s currently sitting in its favorite hunting conditions: a depressed energy market.

Remember five years ago when natural gas prices nose-dived 70% in just a year’s time? That’s when XTO Energy, one of the biggest gas producers in the U.S., was picked up by Exxon Mobil for $25 billion in stock.

There are lots of struggling U.S. oil exploration and production companies should Exxon Mobil decide to go on a buying spree. It has plenty of cash and treasury shares with which to do so.

Exxon Mobil has also been buying back its own shares on a regular basis. In the first quarter of 2015, it repurchased 20 million shares for its treasury at a cost of $1.8 billion. And it expects to repurchase at least $1 billion worth of stock in the second quarter.

Lastly, while both Chevron and Exxon Mobil have major offshore projects, I still think Exxon Mobil is in a stronger position to become a global oil and gas superpower. In the most recent quarter, less than 20% of its upstream profit came from U.S. operations.

If you’re after growth and income, I think Exxon Mobil is the better long-term play.

Good investing,

Dave Fessler

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Source: Investment U