Exxon Mobil: Rationale for Being Short

This is a recent post from the TDI Managed Growth Strategy blog. We use the site as a conduit to provide regular updates to our clients in an effort to provide transparency as well as education….

Here is a chart that we are looking at with regard to Exxon Mobile (XOM). As you know, we are short Exxon Mobil (XOM) and working a paired trade with our long position of the ProShares Ultra Oil (UCO). Only the former for the group is working out as it has become apparent that the flight to safety with investors that are desirous of investing in the oil sector may be fading.

( As a side note; the position in UCO has become an increasing concern as it is not operating correctly, as we see it. It is no longer highly correlated to the index and we will be moving quickly to determine if it will remain in portfolios)

Lately, Exxon Mobil has been a good stock, relatively, especially in this difficult time for the markets. I say relatively as it has been somewhat resilient in the face of a massive earnings falloff for the entire sector. Comparing the earnings to other competitors reveals that Exxon is running on fumes. The technicals show us that a break below $73.32 may trigger programmed sell. In fact, this actually occurred Tuesday and the position was trading at $71.60. as it was the long term support line. Moreover, the cost of gas/oil will cause continuing problems for the company for some time to come.

Here is the simple, down-n-dirty of what we are thinking: Once XOM breaks support and investors become disenchanted with this name, we could see selling pressure mount. Further, as there is no short-term catalyst that will provide an increase to sales, there is no reason to believe that investors will provide substantial support.

(Click chart to enlarge)

Comments

[Marcap:]

While Exxon Mobil shares are trading at almost 3 times book value, the company has a very solid balance sheet, not encumbered by Goodwill or other Intangibles offer cluttering many balance sheets these days. Couple that with the fact that Exxon Mobil has shown consistent (and increasing) profits for the past 3+ years, along with a fair accompanying dividend, and I really don't see its shares falling off the cliff any time soon...at least not until a viable alternative to oil is found and implemented, which I suspect given the current price of oil, unfortunately may still be some time down the road.

Feb 17 04:36 PM

[sr9web:]

The anti-Exxon argument boils down to them not replacing their reserves fast enough. Well, as soon as the recently changed CANROY laws in Canada cause some of the oil royalty trusts to convert to ordinary corps., you can expect some of them to get scopped up by the majors such as Exxon. What will the anti-Exxon argument be then?

Feb 17 10:10 PM

[User 359077:]

"Couple that with the fact that Exxon Mobil has shown consistent (and increasing) profits for the past 3+ years, along with a fair accompanying dividend, and I really don't see its shares falling off the cliff any time soon"...

if you think earnings are rising this year, think again.

estimates have been chopped, chopped, chopped and how earnings can rise when oil is at multi year lows, is beyond me.

Feb 17 10:46 PM

[Fighting Yoda:]

XOM, Oil and BP have tracked pretty well in the past. However as oil has fallen, BP fell along with it but XOM has actually risen (even though below its peak). This is a complete anamoly. I think XOM is/would be the last to fall (same as likes of WalMart or Goldman), it has breached support levels.

Yes, I am bearish on XOM too.

Feb 18 01:18 AM

[k45:]

As crude oil prices drop, Exxon's profit margins in it's chemical operations and retail sales improve. True, those do not fully offset the reduction in profits from crude, but it certainly provides a cushion.

Long term, Exxon has been a good investment through up and down markets. It's a very well managed company with the financial strength to continue building shareholder value. Exxon didn't run out and make expensive acquisitions when the oil bubble peaked. I look for them to make acquisitions at the bottom. Management is probably wiser than most of us.

Feb 18 08:15 AM

[curley55:]

XOM is more than an oil company. It has refinery operations which currently have high refining margins. Look at other refineries like TSO, SUN, VLO and see what they have done. Look at the crack spread and note they are currently at a very high level. The argument for a selloff based on the price of oil is too simplistic.

Feb 18 10:13 AM

[henarl:]

I've been long XOM for many years (profitably) and expect to be for many more. Altho it may go lower in the near term, I believe, as the largest company in the world, it will be around when we're all dead. As to the near term, selling covered calls will alleviate the pain.

Feb 18 04:38 PM

[drone:]

All that cash earning 0% interest, that can't be good.

Feb 24 07:55 PM