Chevron and Vertiv: Contrarian Plays in Undervalued Energy and Tech Infrastructure

In today's market, where fear of economic slowdowns and geopolitical risks dominate headlines, contrarian investors are seeking opportunities in companies overlooked by the crowd. Two such candidates—Chevron (CVX) and Vertiv (VRTX)—present compelling cases for long-term growth at prices that reflect pessimism rather than fundamentals.

Chevron: A Contrarian's Energy Play

Chevron, the second-largest U.S. oil giant, trades at an EV/EBITDA of 5.80, below the industry median of 6.32, signaling undervaluation relative to peers. This metric, which measures a company's efficiency in generating operating profit, suggests the market is underestimating Chevron's operational strength.

Why the Discount?
Analysts have downgraded Chevron on concerns about declining oil prices and a projected 31.6% drop in 2025 EPS. Yet, this pessimism overlooks Chevron's 3.1 million barrels of oil equivalent/day production, proven reserves of 11.1 billion barrels, and a 4.69% dividend yield. The company's Tengiz and Permian Basin projects, which promise long-term cash flows, are undervalued in the current stock price of $137.87 (April 2025 data).

Contrarian Edge: Chevron's low debt-to-equity ratio (0.13) and $6.84 annual dividend (Q1 2025) provide a safety net. While near-term earnings may stumble, the company's dominance in energy infrastructure and its shift toward renewables (e.g., carbon capture projects) position it as a decade-long bet on global energy demand.

Vertiv: The Undervalued Data Center Enabler

Vertiv, a leader in critical infrastructure for data centers and telecoms, trades at a 2% discount to its base case fair value of $112.99, despite having 25% year-over-year backlog growth and a 24% sales surge in Q1 2025. While its P/E ratio of 63.5 is high relative to peers, this reflects rapid growth in AI and cloud infrastructure, not overvaluation.

Why the Market Misses the Story?
Vertiv's elevated multiples (EV/EBITDA of 25 vs. industry median 14.2) are justified by its $7.9 billion backlog—a 25% year-over-year jump—and $265 million in free cash flow in Q1 2025. The company is a key supplier to hyperscalers and telecoms upgrading infrastructure for AI and 5G, yet its stock languishes near $110.97.

Contrarian Edge: Vertiv's debt-free balance sheet (net leverage 0.8x) and Fitch BBB- rating (with a stable outlook) offer stability. The company's $250 million upward revision to 2025 sales guidance underscores its position in the booming data economy. While multiples are high, the backlog and recurring revenue model suggest this is a compound growth story, not a bubble.

Risks and Considerations

• Chevron: Oil price volatility and regulatory headwinds in renewables could delay earnings recovery.
• Vertiv: Overdependence on tech giants' spending and supply chain disruptions pose short-term risks.

Investment Thesis

Both stocks offer asymmetric upside:
- Chevron (CVX): Buy for dividends and long-term energy demand. The stock's 5.8x EV/EBITDA leaves room for re-rating as oil prices stabilize and projects come online.
- Vertiv (VRTX): Accumulate for data center growth. Its backlog and AI-driven demand suggest it's a decade-long play, even at current multiples.

Final Take

In a market fixated on short-term pain, Chevron and Vertiv represent contrarian bets on resilience and growth. Chevron offers a value anchor in energy, while Vertiv is a high-growth lever in tech infrastructure. Both warrant consideration for patient investors willing to look beyond the noise.

Recommendation:
- Chevron: Hold for income and strategic exposure to energy.
- Vertiv: Accumulate below $115 for its structural growth tailwind.

Disclosure: The analysis relies on data up to May 2025. Always consult a financial advisor before investing.