Analysts Are Wrong On Exxon Mobil

| About: Exxon Mobil (XOM)

Given the volatility in oil and gas prices in recent times, chances are you're looking for a safe, long-term investment in the that sector. In the following article, I will explain why Exxon Mobil (NYSE:XOM) should be in your portfolio if it is not already. It is the largest publicly traded oil company in the world, and the stock will likely continue to be a cash generator for value investors and provide robust capital returns, provided one follows the "buy and hold" strategy.

Exxon Mobil is a strong company with a robust cash balance of about $18 billion for the most recent quarter, bringing in around $15 billion in levered free cash flows. Lets not forget the fact that for the last 30 years, Exxon Mobil has raised its dividend.

Exxon Mobil currently has a dividend yield of 2.4%. The stock is surprisingly rated a Hold/Sell by most analysts, making it a great time to buy. Yes, the price earnings ratio is a bit expensive at 9 times, compared to about 3 to 4 times for the industry, but a bargain still, compared to its 5-year low of 9 times. The ratings are in part a reaction to a recent oil spill, which the company is already addressing.

Exxon Mobil is a leading player in oil and gas. With an overwhelming 24 billion barrels of oil equivalent of proven reserves, it leaves far behind majors such as BP (NYSE:BP) (17.8 billion barrels of oil equivalent) and Royal Dutch Shell (NYSE:RDS.A) (14.3 billion barrels of oil equivalent), as of their respective last annual reporting dates.

Exxon Mobil's deal with Rosneft, the Russian state owned Oil & Gas major will kick off in 2013, using the "hydraulic fracturing" technique which is expected to yield billions of barrels of oil in Siberia's shale formation that are hard to extract otherwise. Furthermore, Exxon Mobil's initial production in the Kizomba Satellites Phase 1 region of Angola is already at about 100,000 barrels of oil/day. More good news is available on the Eastern European front with Exxon Mobil having been selected among two other oil firms - Royal Dutch Shell PLC and Ukrainian state firm Nadra Ukrainy, for development of gas assets in the Black Sea region.

On the flip side, Exxon Mobil has discontinued operations in areas where it is not doing so well. For instance, Exxon Mobil has decided to discontinue its operations in Poland as the test wells there have failed to generate a substantial amount of gas. In addition, it is considering the sale of its German fuel station network, simply because it is not providing the kind of demand they need to remain profitable.

It is interesting to note that Exxon Mobil has excelled where other majors are lagging. Consider the technical side of things. Exxon Mobil's return on assets is nearly 10%, compared to BP nearly half that at just 5%. In the same breath, Royal Dutch Shell does manage a fair 7% but overall the writing is on the wall for all to see. Consider cash flows, where Exxon Mobil generates about $55 billion of cash from its operations, BP manages less than half that at under $20 billion, while Shell is a fair contender with under $45 billion.

On a side note, I find it interesting that while many oil companies are facing tough pressure from low gas prices, it is estimated that an increase of $1 in gas prices would lead to an additional $4 million per day in additional revenues for Exxon Mobil.

Liquidity wise, I don't see any potential meltdowns. If the dividend increases have got you worried, the interest coverage ratio is way better than that of the industry at over 250 times, compared to just about 50 times for the industry average. To summarize, I believe reserves and efficiency of operations are the name of the game in the oil and gas industry. Where others are volatile in results, Exxon Mobil is delivering quarter after quarter of solid earnings and dividends. Why? Because it has the right investments and strategic business units. Come third and fourth quarter, as well as long-term, I believe Exxon Mobil will continue to lead the industry. Investors should consider buying Exxon Mobil today.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.