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Is Exxon Mobil Pause An Opportunity?
With oil trading at around $46 a barrel, down from its lofty perch of $150 a year ago, Exxon Mobil's (NYSE:XOM) earnings are roughly half of what they were year-over-year. Its stock price has been sliced from the high-$90s to the mid-$60s. As a result, many are saying big oil's days are done, at least for awhile. But is this the case? Is Exxon Mobil's stock still headed down, and what about crude prices that lead oil stocks?
A Call On Crude
When crude oil prices dipped into the $30s earlier this year, the feeling was that the oil stocks had had it, at least for this current market cycle. Exxon Mobil's stock tumbled from the mid-$90s to the mid-$50s by October 2008, and the other big oil companies followed suit. Exxon Mobil's 41% drop from its high roughly mirrored the market, though it wasn't as bad as the Dow Jones Industrial Average's overall 55% fall from grace. (Learn more in Commodities That Move The Markets.)
Still, the call on crude is a difficult one, with integrated oil companies trying to guess ahead at both potential demand and the price per barrel while making their production schedules. Chevron (NYSE:CVX), for example, has announced cost cuts yet still sees production growth for this year, while ConocoPhillips (NYSE:COP) has stated it intends to keep production steady and BP PLC (NYSE:BP) will keep its spending level. Another major player, Royal Dutch Shell (NYSE:RDS.A), said it might benefit from lower costs in its Kashagan oil fields, a potentially significant savings.
Boosting Production In 2009
Exxon Mobil has announced it will boost production for 2009, finding itself in a still-strong position if demand picks up even slightly and oil settles even at $40 to $60 a barrel. A spike beyond $100 might kill demand again; but within a more stabilized, medium-price range, Exxon Mobil should do well.
At some point, with falling crude prices along with the falling economy, Exxon Mobil and the other big oil companies looked to be attractive candidates for shorting their stocks. Even long-time value investors had to reassess the direction of Exxon Mobil and the others. With annual earnings having grown steadily from $3.89 per share in 2005 to $5.71 in 2006, $6.62 in 2007 and finally peaking at a lofty $7.28 in a record 2008, this year's modest projected income of $4.94 might look unattractive. These earnings, though they give the stock a presently high forward P/E of 14 with its $67 stock price, are hardly terrible. Contrast these with financial, retail or many other industries in the current economy, and it suggests that if 2009 is a low point in earnings, what might an uptick be?
Exxon Mobil, The Strong
Investors should keep in mind that Exxon Mobil is still a dominant player even among the big oil companies. It has nearly three times the market cap of even the other oil giants, but it is hardly a lumbering, stumbling giant. The company is still in the mix of all phases of upstream and downstream operations, and its portfolio of exploration and production projects should make it able to continue to weather these lean times. It already has.
Exxon Mobil's competitors will stay the course, too. BP has a long-haul view of its own plans, and the commitment by Shell into the Kashagan fields is not an overnight project. ConocoPhillips has projections for pipelines as far ahead as 2019, and Chevron is well positioned and waiting for lower costs to work through its operations. Demand in fossil fuels is still projected long term to be a heavy need for industrial societies. Thus, oil is a long-term play. (Drill down into financial statements to tap into the right companies and let returns flow; see Unearth Profits In Oil Exploration And Production.)
Oil Stocks' Future
Some see a rebound in oil stocks soon. Exxon Mobil and the others may bottom out this year in their business with lower earnings and may be poised to ramp up profits once again. Rather than a downturn, 2009 could be a pause - a prelude to another oil takeoff in 2010 or beyond. For fundamental investors who still believe the markets can work, it might presage another bull run in Exxon Mobil and the others.
A Call On Crude
When crude oil prices dipped into the $30s earlier this year, the feeling was that the oil stocks had had it, at least for this current market cycle. Exxon Mobil's stock tumbled from the mid-$90s to the mid-$50s by October 2008, and the other big oil companies followed suit. Exxon Mobil's 41% drop from its high roughly mirrored the market, though it wasn't as bad as the Dow Jones Industrial Average's overall 55% fall from grace. (Learn more in Commodities That Move The Markets.)
Still, the call on crude is a difficult one, with integrated oil companies trying to guess ahead at both potential demand and the price per barrel while making their production schedules. Chevron (NYSE:CVX), for example, has announced cost cuts yet still sees production growth for this year, while ConocoPhillips (NYSE:COP) has stated it intends to keep production steady and BP PLC (NYSE:BP) will keep its spending level. Another major player, Royal Dutch Shell (NYSE:RDS.A), said it might benefit from lower costs in its Kashagan oil fields, a potentially significant savings.
Exxon Mobil has announced it will boost production for 2009, finding itself in a still-strong position if demand picks up even slightly and oil settles even at $40 to $60 a barrel. A spike beyond $100 might kill demand again; but within a more stabilized, medium-price range, Exxon Mobil should do well.
At some point, with falling crude prices along with the falling economy, Exxon Mobil and the other big oil companies looked to be attractive candidates for shorting their stocks. Even long-time value investors had to reassess the direction of Exxon Mobil and the others. With annual earnings having grown steadily from $3.89 per share in 2005 to $5.71 in 2006, $6.62 in 2007 and finally peaking at a lofty $7.28 in a record 2008, this year's modest projected income of $4.94 might look unattractive. These earnings, though they give the stock a presently high forward P/E of 14 with its $67 stock price, are hardly terrible. Contrast these with financial, retail or many other industries in the current economy, and it suggests that if 2009 is a low point in earnings, what might an uptick be?
Exxon Mobil, The Strong
Investors should keep in mind that Exxon Mobil is still a dominant player even among the big oil companies. It has nearly three times the market cap of even the other oil giants, but it is hardly a lumbering, stumbling giant. The company is still in the mix of all phases of upstream and downstream operations, and its portfolio of exploration and production projects should make it able to continue to weather these lean times. It already has.
Exxon Mobil's competitors will stay the course, too. BP has a long-haul view of its own plans, and the commitment by Shell into the Kashagan fields is not an overnight project. ConocoPhillips has projections for pipelines as far ahead as 2019, and Chevron is well positioned and waiting for lower costs to work through its operations. Demand in fossil fuels is still projected long term to be a heavy need for industrial societies. Thus, oil is a long-term play. (Drill down into financial statements to tap into the right companies and let returns flow; see Unearth Profits In Oil Exploration And Production.)
Oil Stocks' Future
Some see a rebound in oil stocks soon. Exxon Mobil and the others may bottom out this year in their business with lower earnings and may be poised to ramp up profits once again. Rather than a downturn, 2009 could be a pause - a prelude to another oil takeoff in 2010 or beyond. For fundamental investors who still believe the markets can work, it might presage another bull run in Exxon Mobil and the others.
by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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