- Exxon-Mobil stock is down just 25% from oil's peak in June 2014.
- Exxon's diversification in refining and retailing gives it positive operating cash flow.
- Exxon has the financial strength to bet big when oil turns around, and an attractive dividend yield.
It is true that since the peak of the oil boom, in June 2014, Exxon-Mobil stock is down 25%. But compare that to the 76% loss in the main crude oil ETF, or the 40% loss in BP (NYSE:BP), another diversified energy play, and what Exxon's got is a paper cut.
There are two reasons for that: Exxon's diversification and capital strength.
First, diversification. Since Exxon-Mobil, as an oil major, also transports, refines and markets oil and gas products, it has a lot of ways to make up for losses in the product itself.
Pure refiners, like Phillips 66 (NYSE:PSX), have gotten through this depression relatively unscathed, down just 4.5% even while paying out respectable dividends – a 2.73% yield in its case. They have benefited from the oil export embargo, which kept their own costs below those of the world market, and the U.S. economy will continue to benefit from their capacity even with parity, since refineries are so hard to build.
Another sweet spot is marketing oil. Owning gas stations and distribution networks guarantees you get at least a retailer’s spread, along with ancillary grocery sales. Even poor station operators, like Marathon Petroleum (NYSE:MPC) are up on the year, although the best operators, like Wawa, QuikTrip and Buccee’s, are all privately-held.
More important to many investors is Exxon-Mobil’s financial strength. At the end of September Exxon still had $4.2 billion of cash on its books. Exxon-Mobil had total assets of $340.6 billion, with only $19.8 billion in long-term debt on those assets. Even during the first quarter it had positive operating cash flow. During the third quarter alone it generated nearly $25 billion in operating cash flow.
Exxon's management has, wisely in retrospect, chosen not to deploy this financial strength, waiting for operators to fall into its lap instead. It made a small acreage deal in the Permian Basin of West Texas. However, Exxon still has a AAA credit rating, treasury shares worth $278 billion, and the wherewithal to buy-out any of its largest rivals among the international oils, like Chevron (NYSE:CVX), BP or Royal Dutch Shell -A (NYSE:RDS.A).
There remains an assumption that oil has at least one more leg up, and speculation that prices could still skyrocket back to the $100/barrel level they held before the collapse. This also helps hold up the Exxon-Mobil stock, which retains a Price/Earnings multiple of 16.5 and a more-than-respectable dividend yield of 3.74%. As traders search for a bottom in oil, and a turnaround, they’re going to keep accumulating Exxon-Mobil stock. It’s a profitable thing to do.