- Exxon Mobil has fallen less than other oil stocks during the oil bust
- Its dividend delivers a 4% yield, and is supported by earnings
- A safe way to play the end of the bust.
Bulls have two theories about Exxon Mobil (NYSE:XOM).
First, they believe oil prices will rebound next year, as U.S. production declines. Second, they see the company’s 4% yield as irresistible, and sustainable.
The company can expect more gains today after TV analyst Jim Cramer gave it a boost on his September 30 show.
Exxon stock’s performance has been poor in 2015, falling from over $90/share to its present level of $75. Revenues have been hit harder – compare the June quarter’s $71 billion take to the previous year’s $106 billion. But profits have continued to flow. This last June Exxon Mobil earned $1/share, easily covering a 73 cent dividend.
Strong Balance Sheet And Cash Flow
Exxon Mobil looks good because it has a superior balance sheet and cash flow. In June it still had just $33 billion in debt covering $348 billion in assets. There was still $4.3 billion in cash on the books, and $51 billion in current assets, including receivables and inventory.
Best of all, Exxon Mobil is still generating positive operating cash flow – almost $17 billion in the second quarter alone. This is because it is more than just an oil producer. It is a major oil transporter, refiner, and marketer. So even when the price of crude drops, it benefits from higher crack spreads and enormous storage capacity.
Is Exxon A Good Stock To Invest In?
Not all is well if you’re considering an investment. The company has been forced to sell a California refinery at a knock-down price -- the plant has been shut since an explosion in February that nearly spread a hydrochloric acid cloud over 200,000 people. The decision by Canadian Oil Sands to end production at its Alberta Syncrude project also hit the stock.
Its admission that Exxon Mobil scientists knew about climate change decades ago, and that the company continued to deny it, could open the company up to massive litigation, especially if renewable energy expands so that the risk to supplies from the suits goes down.
The company also doesn’t know when to keep quiet. One of its officials was in Houston just this week, promoting Arctic oil exploration despite the failure of Royal Dutch Shell to find any meaningful deposits. Jed Hamilton argued that the Russians are coming and we’ll need new supplies 20 years from now. Maybe, but maybe this was not the time to be saying so.
Exxon stock has given shareholders a great run for decades, usually delivering much greater returns than the average member of the S&P 500. That hasn’t been the case since the oil bust began, but if you believe it’s about to end – and many believe it is – then Exxon Mobil stock may be the best place to take advantage of that. It is not likely to rise as much as other oil stocks, but it hasn’t gone down as far either. And there is that dividend to keep you warm.