Total SA (TOT) is a major French oil and natural gas company that has a myriad of very appealing features for investors, particularly with its recent price drop.
Over the last week, Total SA has fallen more than 5% due to a gas leak at the Elgin Field in the North Sea. If Total continues to fall, it should be viewed as a buying opportunity to establish a long term holding.
Now trading around $52.30, Total SA has a mean analyst target price of $63.18 for the next year. Its dividend yield is 5.92%. (The average dividend paid by a stock on the Standard & Poor's 500 Index is around 2%. ExxonMobil (XOM) pays a dividend of just 2.17%).
The price-to-earnings ratio for Total SA is 7.04. That is expected to fall over the next year to 6.66. The price-to-earnings ratio for Exxon Mobil is 10.30, while the average price-to-earnings ratio for a stock on the Standard & Poors 500 Index is around 15.
Foreign oil companies tend to trade at a discount to American majors. The price-to-sales ratio for Total SA, for example, is 0.54. For Exxon Mobil, the price-to-sales ratio is 0.84.
Oil is trading above the price range that it should be based on sector fundamentals. Testifying before Congress last year, ExxonMobil Chief Executive Officer Rex Tillerson stated that based on supply and demand principles, the price of oil should be around $60-$70 a barrel.
What has driven up the price of oil is speculation based on the monetary policies of the Federal Reserve Bank, allied with recent fears of military confrontation with Iran. Quantitative easing measures have weakened the US dollar and as a result, investors have fled into hard assets such as oil. The price of a barrel of oil has risen greatly since Quantitative Easing II was announced in August 2010.
A drop in oil stock prices is overdue given bulging inventories, new discoveries and sources, China slowing down, Indian growth falling, and Europe in a recession. Investors should take advantage of the inefficiency in the market pricing and any dips to accumulate shares of Total SA.
The high dividend yield will pay for any waiting periods.