I have written several times about Exxon Mobil (NYSE:XOM) and I would like to reiterate why I believe that even at the current price per share, XOM could be very undervalued and buying shares now could reap significant rewards. Read this to review.
Remember that owning XOM shares will also give us a decent (not great) dividend to wait for all of the moving parts to kick in.
1) A slower than average economic recovery
2) A annoyingly low price for natural gas
3) A larger than average supply of oil around the world but with concerns for the future (refer to this news report)
To be clear, these headwinds are a few of the biggest and there are plenty of other issues that abound for the industry as a whole, as well as some company specific issues facing XOM itself.
Let Me Address Each Issue From My Own Standpoint
1) While the economy has been painfully slow to recover it is clear that there is some sort of recovery going on. Lower unemployment numbers (yes I realize that there are many ways to spin the numbers) while still 8.5%, is down a full percentage point from merely six months ago. We are also adding jobs, even if a chunk of them are seasonal by many accounts. Let's face it, good news is still good news.
Consumer sentiment is rising as has been reflected in a robust holiday spending surge to a five month high (read the data here) that could carry over well into 2012, in my opinion. When the consumer "feels" good, they tend to spend more, drive more, and use more energy. Even if the unemployment rate stays high for the time being there is still a 91.5% employment rate when looking through my half full glass rather than the half empty glass crowd.
"Demand at Ford Motor, General Motors and Chrysler Group LLC exceeded analysts' forecasts in December, other data showed yesterday. Ford's U.S. sales climbed 10% from a year earlier, while purchases of Chrysler vehicles were up 37%. At GM, they increased 4.5% from a year earlier."
This bodes well for every phase of manufacturing that the U.S. has, and is an obvious green light for the major fuel companies like XOM to build upon its core revenue base.
I can continue to tick off many more observations that are apparent to a regular guy like me, and I am sure there is an argument for the bearish side to dispute everything anyway. That being said, I believe we do feel better about the economy, but not great yet.
2) There is no getting around the fact that natural gas prices have plummeted (as noted quite pointedly here) and that all the major fuel companies have felt this impact.
My opinion is that the law of supply and demand will eventually kick in and gas prices will rise slowly. XOM is in a sound position (read this article) because of its extremely low entry price in this market, and that is not all. XOM is not a one trick pony. XOM is enormous in all areas of energy, and has been able to navigate through all of the ups and downs that pertain to supply, demand and pricing, and it continues to show mind blowing revenues and profits. Since we are already at a ridiculously low price now, there seems to be little downside risk now. To me, every move from here could be up, and XOM has the position.
3) The supply of oil has been on the high side with very few surges in demand and one would think that the price would have dropped, not risen to $100/barrel or more. To me it seems as though we have reached a bottom threshold price of around $80/barrel and a trading range of $80-100. Being the skeptic that I am I want to know why the price of oil has not fallen off of a cliff.
My belief is that the many emerging markets that are just now beginning to ramp up basically everything that a growing economy offers, will have a huge need for fossil fuels (oil, coal, etc) for the foreseeable future because quite frankly the "renewable" energy resources could never keep up with demand just by its very nature. It cannot replace fossil fuel as of now, and the costs to emerging markets for those types of energy supplies are far greater than what is available today for oil, coal and natural gas reserves. (read this opinion)
At some point the "green" energy resources will catch on and catch up. I simply do not see any impact from those resources that would change the way the world lives and breathes for now. When that event happens, XOM is ready to pounce. (read this to review)
Exxon Mobil is the king of the hill in my opinion. While many other companies out there offer larger dividends, have "friendlier" management, and seem to be less stodgy in their approach, I personally want the biggest monster in my portfolio, forever.
XOM can basically do whatever it wants, and can even deal with our government (breaking news here) to gain advantages for an even greater growth potential.
My question to anyone reading this, is why NOT own shares of XOM?
We could see new all time highs in 2012 in my opinion.
*Please remember to do your own research before buying or selling any stock mentioned here. The authors opinions are not recommendations to buy or sell any equity.
Disclosure: I am long XOM.