Does Exxon Mobil Have the Potential for New Highs?

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With shares of Exxon Mobil (NYSE:XOM) trading around $101, is XOM an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Exxon Mobil is a manufacturer and marketer of commodity petrochemicals like olefins, aromatics, polyethylene, and polypropylene plastics, as well as a range of specialty products. The company has a number of divisions and affiliates with names that include ExxonMobil, Exxon, Esso, and Mobil, which operate or market products in the United States and other countries. Exxon Mobil’s principal business is energy, involving the exploration for and production of crude oil and natural gas; manufacture of petroleum products; and transportation and sale of crude oil, natural gas, and petroleum products.

Already the largest natural gas producer in the U.S., Exxon Mobil is doubling down with plans of entering the world of plastics. Announced last year, Exxon plans to expand its Baytown, Texas facility to convert natural gas into polyethylene. One of the most common plastics in the world, polyethylene is known for its use in plastic bottles but can also be used in kitchen bags, wraps, industrial piping, and numerous other products. A relatively new trend with the rise in price of crude oil streams and the low price of natural gas, Exxon could be poised to take the lead in the natural gas-to-plastic industry. However, despite what may look like a diversification of revenue for its natural gas plays, Exxon is treading dangerous waters by exposing itself to the same type of risks the rest of its portfolio is vulnerable to.

A large portion, if not all, of Exxon’s portfolio is exposed to the potential shifts in industry and politics regarding climate risk. While it could possibly be an important source of revenue down the line, this transition into plastics leaves Exxon open to the emerging technology of bioplastics, a technology that is showing increasing promise and could significantly reduce the lifetime of gas-to-plastic plants, especially if gas prices rise. One such example is Newlight Technologies, LLC. As stated on its site, Newlight was “founded out of Princeton University and Northwestern University in 2003. Newlight has developed, patented, and commercialized the world’s first commercially-scaled carbon sequestration technology able to produce a high-performance thermoplastics that can match the performance of oil-based plastics and out-compete on price.”

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