Shares of Exxon (NYSE:XOM) moved substantially higher last week on the heel of an announcement that Berkshire Hathaway purchased slightly more than 40 million shares valued at 3.5 billion dollars in the last month and a half. The news was obtained from an SEC filing that received confidential treatment as Warren Buffet built his large position. The relatively inexpensive price of the giant integrated oil company makes this selection an obvious choice for Buffet, and it will likely continue to climb as investors jump in to catch a wave of euphoria following the news.
XOM currency traders a 12 times estimated earnings per share for the next 12 months and the shares trade at a 23% discount to the S&P 500's forward earnings multiple. The dividend yield is slightly less than 2.6%, while the company only has debt of 5%. The profit margin for XOM is nearly 15% and the 3-year growth rate of sales is 6%.
Exxon Mobil's size and liquidity enabled Buffett to make it his largest new position since he put more than $10 billion to work in another mega-cap issue, IBM, in 2011. Exxon floats substantial cash flow which makes the stock an attractive cash cow.
After the news was released XOM surged in price breaking out above former resistance near the July highs at 94.30. The next level of target resistance for XOM is 98. Support is seen near the breakout level at 94.30. Momentum on the stock is strong with the MACD (moving average convergence divergence) index printing at its highest levels seen in the past year. Once issue for investors is the high level of the RSI (relative strength index) which is now printing near 79 which is well above the 70 trigger level for an overbought condition and could represent a warning that the proprietary trading price could correct in the near future.