Breaking News

Exxon Mobil: Is The Stock's Latest Dip A Buying Opportunity?

By Investing.com (Haris Anwer/Investing.com)Stock MarketsMar 05, 2018 06:58
Exxon Mobil: Is The Stock's Latest Dip A Buying Opportunity?
By Investing.com (Haris Anwer/Investing.com)   |  Mar 05, 2018 06:58
Saved. See Saved Items.
This article has already been saved in your Saved Items

Exxon Mobil's (NYSE:XOM) stock has been under pressure since the start of the year. Despite crude oil prices trading in a higher range during 2018, investors have shunned the world’s largest oil producer after it missed its most recent quarterly earnings forecast.

XOM Weekly
XOM Weekly

Trading at $75.55 as of Friday's close, Exxon stock is down almost ~10% in 2018, wiping out all gains made during the past 12 months. Is this dip, which pushed the company’s dividend yield to above 4%, a buying opportunity for the long-term income investors?

Despite a temporary setback, I believe Exxon Mobil has not lost its shine, and investors should focus on the long-term value generated by the company’s major transformation which followed the latest oil downturn.

Oil Monthly 2013-2018
Oil Monthly 2013-2018

Diversified Operations

The biggest strength in Exxon Mobil’s business model comes from its diversification. The company operates one of the world’s largest integrated refiners, it markets petroleum products and manufactures chemicals as well. In other words, Exxon's revenue stream doesn’t only rely on crude oil.

This diversification provides a healthy balance, enhancing the company’s ability to continue generating cash flows when oil and gas prices are in a cyclical downturn.

NatGas Monthly 2013-2018
NatGas Monthly 2013-2018

Weak commodity prices since 2014 have hit Exxon’s upstream business quite hard and that’s the one area where the company continues to struggle. Excluding a one-time tax benefit in the fourth quarter, the underlying loss from the company’s U.S. upstream business was $541 million. This is Exxon’s 12th consecutive quarterly loss in the business and it seems to be the biggest drag on the company’s share price. But management has a plan to address this challenge.

To counter this cyclical downturn in oil prices, Exxon is investing billions of dollars to increase oil production in the Permian Basin in West Texas and New Mexico, expanding existing operations, enhancing infrastructure and building new manufacturing sites.

The company plans to triple its oil and gas production in the the Permian Basin by 2025, encouraged by the recent reduction in corporate tax rates. Exxon plans to integrate this new supply with its refining and chemicals businesses to capture more margin.

Threat From Bond Yields

Big dividend stocks such as Exxon tend to underperform when bond yields begin to rise. The reason behind this equation is simple: when investors see an attractive return from safe haven assets, such Treasury bills, they exit more risky bets.

As of Friday, the U.S. 10-year Treasury bill was trading just under 3%, with some analysts calling for a 4% yield by the end of 2018 as the Fed, the U.S. central bank, continues to raise interest rates. However, when it comes to Exxon, I think investors are getting it wrong.

Exxon’s dividend payments to shareholders have grown at an average annual rate of 6.3% over the last 35 years. The company is the biggest cash distributor among the companies listed on the Dow Jones Industrial Average, having paid close to $13 billion to shareholders during the trailing 12-month period.

One thousand dollars invested in the company’s shares 40 years ago would be worth a staggering $70,000 in total returns today, with the major chunk coming from dividends.

The Bottom Line: With oil prices stabilizing in the $60-$65 a barrel range and some forecasters, including Goldman Sachs, calling for Brent to reach $82.50 within the next six months, I see a bullish trend emerging for XOM stock.

Brent Monthly 2013-2018
Brent Monthly 2013-2018

Even if oil prices remain at current levels, continued production growth will allow the company to increase its cash flows. Thanks to its diversification and excellent balance sheet, Exxon is well positioned to maintain its long and impressive history of reliable dividends.

By comparing Exxon Mobil's performance with industry peers, you will see that the company is still getting better returns. After a 15% plunge from its 52-week high of $89.30 at the beginning of January, the company's share price looks cheap and hard to ignore. I think this stock is a strong buy on the current dip.

Exxon Mobil: Is The Stock's Latest Dip A Buying Opportunity?

Related Articles

Exxon Mobil: Is The Stock's Latest Dip A Buying Opportunity?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Are you sure you want to delete this chart?
Write your thoughts here
Replace the attached chart with a new chart ?
Post also to:
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Post 1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email