Exxon Mobil Corp. (XOM) shares could be headed much higher, and it will have rising oil prices to thank. Shares have the potential to increase by nearly 20% over the longer-term from its current price around $87.50, to $105. That is because the stock is nearing a technical breakout from a multi-year downtrend, on the strength of surging oil prices. (For more, see also: Exxon, Chevron and Oil Are Breaking Out.)
WTI Crude oil could see its price climb by nearly 18% to roughly $76, from its current price around $64.50. The rise in oil is being triggered by improving global economics, tightening supply, and weak a U.S. Dollar. In fact, a recent article in Barron's is calling for oil to rise to $80, and while a continued rise in the price of oil is unknown, it is helping to lift the stock price of the entire energy sector.
Improving Fundamentals Leading to a Breakout
Rising oil prices should help to grow Exxon's revenue, while also boosting its bottom line. The chart below shows how Exxon is on the verge of a technical breakout, as investors begin to anticipate the companies potential windfall. A breakout could help to lift the stock by as much as 20% to its next significant level of resistance at $105—about 20% higher from current levels.
Building a Technical Base
The next chart also shows how Exxon has been attempting to build a base since bottoming in August of 2015. This has helped to create a nice uptrend for the stock, which Exxon recently tested in August of 2017. Meanwhile, the Relative Strength Index (RSI) is indicating the stock is overbought with a reading over 70. It may mean that a breakout above $88 could lead the stock higher, towards a short-term resistance level at $93, followed by a period of sideways consolidation. (For more, see also: The Future Looks Bright for Exxon Mobil.)
Surging Oil Prices
The oil chart below shows how the commodity has recently broken through resistance around $62, currently trading around $64. The next level of resistance comes approximately at $76, an increase of about 16 to 18%.
An improving global economy, tight supply, and a weak dollar are what oil needs to get its price rising, and Exxon could surely be a principal beneficiary of such a rise. But still, Exxon will need to deliver and take advantage of the rising prices in oil, and drive revenue and profits higher.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.