Exxon Mobil Stock Is An Excellent Long-Term Investment

| About: Exxon Mobil (XOM)

Summary

Even if oil prices would retreat in the upcoming weeks, it is still not the right time to sell Exxon shares.

In my opinion, XOM's stock is an excellent long term investment.

While waiting for a significant increase in the price of oil, patient investors can enjoy Exxon's pretty high dividend yielding about 3.5%.

Although Exxon's dividend yield is lower than that of the other supermajor integrated oil & gas companies, it is sustainable, in my view.

As expected, shares of the five supermajor integrated oil & gas companies have surged in the last two months along the steep rise in crude oil prices. While oil prices have soared about 40% from their 12-year low on January 20, the average increase in the price of the five supermajors was at 20.4% in this period, as shown in the tables below. It is worth noting that also the decline in the price of the leading oil companies since the start of the free fall in oil prices in July 2014 was significantly less than the drop in oil prices.

However, since the fundamentals for crude oil prices are still pretty weak, investors might worry about the durability of the latest rally. According to OilPrice.com, oil inventories are still massive (setting another record last week) and global supply continues to outstrip demand. The upward movements in prices are largely being driven by market sentiment and a weaker U.S. dollar over the past month and a half. A sustained rally in prices may not be here just yet, so there is a risk that prices retreat in the weeks ahead. As such, investors might wonder if now it is the right time to take some profits (depending on the price the stocks were bought) and sell their holdings in the supermajor oil stocks.

In my previous sarticle about Exxon Mobil (NYSE:XOM) from March 02, I suggested that Exxon will end up even stronger when oil prices recover. In contrast, to many other energy companies, Exxon has remained profitable during this down cycle of energy prices. Moreover, I assumed that Exxon will use the proceeds from the sale of $12 billion in bond to take advantage of the current situation to make acquisitions at very low prices. Hence, as I see it, even if oil prices would retreat in the upcoming weeks, it is still not the right time to sell Exxon shares. In my opinion, XOM's stock is an excellent long term investment. Oil prices will eventually recover sooner or later. Commodities prices are moving in cycles, and lower capital expenditures on exploration and production will eventually cause oil prices to rebound. According to oilfield services company Baker Hughes (NYSE:BHI), the number of rigs exploring for oil and natural gas in the U.S. dropped four last week to 476, a record low, a year ago, 1,069 rigs were active. Baker Hughes said on Friday that 387 rigs sought oil, and 89 explored for natural gas last week.

While waiting for a significant increase in the price of oil, patient investors can enjoy Exxon's pretty high dividend. Although Exxon's dividend yield is lower than that of the other supermajor integrated oil & gas companies, it is sustainable, in my opinion. Exxon has increased its annual dividend payment to shareholders for 33 consecutive years. Even during the global economic crisis of the years 2008-2009, Exxon continued to grow its dividend. Currently, the dividend yield is pretty high at 3.47%, and the payout ratio is at 75%. The annual rate of dividend growth over the past three years was high at 13.4%, over the past five years was at 10.2%, and over the last ten years was also high at 9.8%.

Since the beginning of the year, XOM's stock is up 8.0% while the S&P 500 Index has increased 0.3%, and the Nasdaq Composite Index has lost 4.2%. However, since the beginning of 2012, XOM's stock has lost 0.7%. In this period, the S&P 500 Index has increased 63%, and the Nasdaq Composite Index has risen 84.1%. Nevertheless, I believe that XOM's shares could go much higher when oil prices return to normal. As no one has anticipated crude oil plunging 70% in a year and a half, it is impossible at this moment to determine when this will happen.

XOM Daily Chart

XOM Weekly Chart

Charts:TradeStation Group, Inc.

Ranking

According to Portfolio123's "All-Stars: O'Neil" ranking system, XOM's stock is ranked second among all 40 S&P 500 energy stocks. The ranking system is based on investing principles of the well-known investor William O'Neil.

The "All-Stars: O'Neil" ranking system is quite complex, and it is taking into account many factors like; EPS Growth, Sales Growth, Industry Growth, Market conditions and Margins, as shown in the Portfolio123's chart below.

Back-testing over fifteen years has proved that this ranking system is very useful. The reader can find the back-testing results of this ranking system in this article.

Summary

As expected, shares of the five supermajor integrated oil & gas companies have surged in the last two months along the steep rise in crude oil prices. While oil prices have soared about 40% from their 12-year low on January 20, the average increase in the price of the five supermajors was at 20.4% in this period. As I see it, even if oil prices would retreat in the upcoming weeks, it is still not the right time to sell Exxon shares. In my opinion, XOM's stock is an excellent long term investment. Oil prices will eventually recover sooner or later. Commodities prices are moving in cycles, and lower capital expenditures on exploration and production will eventually cause oil prices to rebound. While waiting for a significant increase in the price of oil, patient investors can enjoy Exxon's pretty high dividend. Although Exxon's dividend yield is lower than that of the other supermajor integrated oil & gas companies, it is sustainable, in my opinion.

Disclosure: I am/we are long RDS.A.

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.

About this article:

Expand
Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Tagged: , , , Major Integrated Oil & Gas
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here