Source: PaxForex Premium Analytics Portal, Fundamental Insight
ExxonMobil | Fundamental Analysis
The process of investing is quite complex, and while it would be nice to say that stocks are a "screaming buy," these situations don't actually occur very often. So what should we do with leading energy stocks like ExxonMobil today? Let's analyze whether it's worth buying, selling, or holding.
Exxon is one of the largest integrated energy companies on the planet, with a market capitalization of $470 billion. Its diversified business begins with exploration and production (drilling) and ends with transportation (pipelines) and refining (refining and chemicals).
This provides an internal balance, as downstream businesses typically benefit from lower oil and natural gas costs precisely when upstream businesses receive less revenue from those same commodities.
In addition, Exxon has a solid balance sheet that it uses in bad times to sustain its business and pay dividends (the debt-to-capital ratio is a very modest 0.2 today). Dividends, for reference, have been increasing every year for four decades. That's pretty impressive, given the cyclical nature of the energy sector, which is prone to rapid and sharp price swings in both directions.
In fact, Exxon is poised to ride the highs and lows of the industry, continuing to reward investors throughout the cycle. In terms of the big picture, this is a very promising energy company. But that doesn't mean its stock is worth buying, selling, or holding today. There are other factors to consider.
Here's the thing: Oil prices fell during the pandemic and have since recovered. In fact, 2022 was an outstanding year for Exxon and its competitors, with the company more than doubling year-over-year profits. Stocks responded as one would expect and have risen nearly 200% over the past three years.
Still, the energy industry is very cyclical, so a decline is bound to follow at some point in the future. If you are an investor looking to enter the energy sector today, it would be logical to be cautious and buy a diversified industry giant with enough financial strength to survive the next weak period in the oil industry. From this perspective, Exxon looks like a good choice even today.
Note that "even today" is an important qualifier because the stock has had a very good run. In fact, the dividend yield of 3.1% is at the lower end of the company's historical range.
This suggests that the stock is on the expensive side. If you are value-oriented and already hold Exxon stock, you may want to sell it for capital gain. The same is true if you're just trying to time the ups and downs of the industry.
The cyclical nature of the industry supports this point, as it is almost a guarantee that oil prices will eventually fall before the next downturn (as they have throughout history). When that happens, Exxon's stock price will likely collapse as well. This assumes, however, that you take a fairly active approach to your portfolio.
Some investors, meanwhile, just like to buy good companies when they offer historically high returns. So, if you had the guts to buy stock in 2020 when Exxon's price was low, you could get a dividend yield of 10%.
Sure, you have a tangible capital gain at that point, but you would have a hard time finding a replacement for the income that Exxon brings to your portfolio. And it will be even harder to find such a high yield from a company with a similarly strong dividend profile.
Basically, the yield when you buy it can be so attractive that selling it will unnecessarily reduce the income your portfolio generates. And if you expect to live on dividends, selling Exxon today would probably be a mistake. Yes, your paper profits will decline in the next industry downturn, but if history shows you to be so, your dividends will rise.
When it comes to investing, there is no one-size-fits-all answer. But at the end of the day, Exxon is a perfectly organized energy company. If you want to buy stock in this cyclical industry, which is currently at its peak, it's a safe enough option.
If you're trying to time the ups and downs of the energy market, you'll probably want to sell the stock today before the next downturn in the industry. If you are a dividend investor looking for a reliable income stream, however, Exxon with its solid dividend is probably a good option to hold, regardless of what happens with energy prices.
As long as the price is above 110.00, follow the recommendations below:
As long as the price is above 102.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 114.95
- Take Profit 1: 117.00
- Take Profit 2: 119.00
Alternative scenario:
If the level of 110.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 110.00
- Take Profit 1: 108.00
- Take Profit 2: 106.00
