Why Exxon-Mobil Stock Remains The Oil Play Everyone Loves

  • 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.
XOM stock chart

Exxon stock price chart vs S&P 500 by amigobulls.com

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.

Show Full Article
5 2
Is this article helpful ?    

Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

show more

Comments on this article and XOM stock

Do share this awesome post