I'm searching for good investments to make in 2013. In this article, we'll take a look at Exxon Mobile (XOM). We'll take a look at Exxon's historical share price performance as well as its financial performance. Also, we'll evaluate Exxon from the perspective of a technical analyst.
First, we'll use descriptive statistics by taking a sample of the population of monthly returns of Exxon. At this point, we won't make any statistical inferences. Some of the sample statistics will include the arithmetic time-series mean, and the time-series median. Also, we'll take a look at a histogram. We'll also discuss the absolute frequencies, relative frequencies and cumulative relative frequencies of the return profile. Further, we'll determine the geometric mean return and the modal interval. The sample will consist of monthly returns between 2000 and 2012.
The arithmetic time-series mean monthly nominal return was 0.8 percent. The time-series median monthly nominal return was 0.3 percent.
Four of the nominal monthly returns were between -15 percent and -10 percent. Twelve of the nominal monthly returns were between -10 percent and -5 percent. Fifty-three of the nominal monthly returns were between -5 percent and 0 percent. Fifty-four of the nominal monthly returns were between 0 percent and 5 percent. Twenty-six of the nominal monthly returns were between 5 percent and 10 percent. Five of the nominal monthly returns were between 10 percent and 15 percent.
About 34 percent of the nominal monthly returns were between -5 percent and 0 percent. Further, almost 35 percent of the nominal monthly returns were between 0 percent and 5 percent. A little over two percent of the nominal monthly returns were between -15 percent and -10 percent. Finally, almost 17 percent of the nominal monthly returns were between 5 percent and 10 percent.
That said, almost 45 percent of the nominal monthly returns were between -15 percent and 0 percent. That means the other 55 percent of the nominal monthly returns were 0 percent or more. The modal interval was 0 percent to 5 percent.
The time-series geometric mean nominal monthly return or time-series nominal monthly compound growth rate was 0.7 percent. The nominal geometric mean monthly return on a bond equivalent basis was 8.4 percent. The nominal geometric mean monthly return on an effective annual yield basis was 8.7 percent.
Next, we'll compare some of those sample statistics with the sample statistics of the S&P 500 during the same period.
The arithmetic time-series mean monthly nominal return on the S&P 500 was 0.1 percent. The time-series median monthly nominal return on the S&P 500 was 1 percent.
The geometric time-series mean nominal monthly return or time-series nominal monthly compound growth rate on the S&P 500 was 0 percent. I'm sure you can calculate the nominal bond equivalent yield and nominal effective annual yield on the S&P 500: They were 0 percent.
Thus, Exxon outperformed the S&P 500 between 2000 and 2012.
The sample standard deviation of monthly returns on Exxon was 5 percent. The sample standard deviation of monthly returns on the S&P 500 was 5 percent.
Without a macroeconomic shock, I forecast the U.S. unemployment rate to drop to 7.1 percent by the end of 2013. Further, the U.S. unemployment rate should drop to 6.4 percent by the end of 2014 and 5.7 percent by the end of 2015. Basically, I expect inflation to pick up over the next few years as the unemployment rate declines. Thus, I expect economic conditions to be favorable to Exxon's operations in the coming year. Plus, the Federal Reserve is expanding its balance sheet until the unemployment rate declines.
Exxon's total revenue grew at a nominal compound annual growth rate of 9 percent between 2003 and 2011.
Exxon's net income grew at a nominal compound annual growth rate of 9 percent between 2003 and 2011.
Exxon's dividend per share increased at a nominal annual compound rate of 8 percent.
In other words, since at least 2003, the firm has grown faster than the economy. Further, sales and net income have appreciated at about the same pace as the share price.
Exxon may continue to grow faster than the economy. Professional investors should monitor the firm's financial performance and position as Exxon could continue to outperform the broader market.
The firm is valued at 0.83 times sales and 9.37 times trailing earnings. During economic expansions, cyclical firms typically trade at lower premiums. That said, there is plenty of room for multiple expansion.
As of writing, the dividend yield is 2.57 percent. Also, the debt-to-equity ratio is 0.07.
The quick ratio was 0.79 and the current ratio was 1.03. Exxon has a market cap. of roughly $400B.
Currently, the price of light sweet crude oil is in a corrective wave of primary degree. I expect the wave to complete within the next six months. Thus, I think we see higher crude oil prices in 2013, relative to 2011 and 2012. Further, a sustained break below $70-bbl would negate my view.
Natural gas was in a bull market for most of 2012. That said, the energy-related commodity is in a secular bear market. Currently, we are seeing a decline in the price of natural gas; the decline may be of primary-trend degree. Thus, the price of natural gas may re-test the $2 level in 2013.
Shares of Exxon are trading above the declining 50-day simple moving average. The market for shares of Exxon may be beginning an intermediate-term advance that should re-test the $93 zone.
The MACD is forming a positive divergence with the share price of Exxon as the 14-day slow stochastic forms a bullish crossover following a brief stint in the oversold zone.
Also, the broader market remains in a Dow theory bull market.
Finally, the Dow Jones industrial average and S&P 500 are trading above the 50-day simple moving average.
Disclaimer: This article is not meant to establish or continue an investment advisory relationship. Before investing, readers should consult their financial advisor. Christopher Grosvenor does not know your financial situation and ability to bear risk and thus his opinions may not be suitable for all investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.