Exxon Mobil: Why the Stock Looks So Rosy
Since peaking at $95 per share in 2007, Exxon Mobil (NYSE:XOM) has been in a consolidation range, and it has underperformed several of its peers in the integrated oil space. While there were exceptions such as BP (NYSE:BP), which suffered through the Gulf Oil spill, investors tended to favor its smaller yet less expensive peers such as Chevron (NYSE:CVX) and Conoco Phillips (NYSE:COP).
However, throughout this time frame, Exxon Mobil’s underperformance in both share price and in earnings growth was due in large part to long-term investments. Large investments in XTO energy and in the Arctic didn’t immediately generate earnings, and in fact, the former increased the company’s share count, thereby reducing earnings per share.
But while Exxon’s competitors have largely been focused on nearer-term growth, Exxon Mobil has looked far into the future, and now it appears as if this strategy is paying off. True, it isn’t yet generating earnings, but it is attracting new investment dollars — most notably from Warren Buffett’s Berkshire Hathaway (NYSE:BRKA), which has begun to accumulate shares while selling rival Conoco Phillips despite the latter company’s lower P/E ratio, higher dividend, and faster near-term growth.
This tells me that Exxon Mobil is the oil major to bet on longer term. That isn’t to say that the other oil majors aren’t solid investments — they are some of the least expensive stocks in the market, and they are extremely shareholder friendly. But while commonly used metrics suggest otherwise, Exxon Mobil is incredibly well positioned going forward to take advantage of growing global demand for energy.
It is following simple yet powerful strategies that convince me that it will be a solid investment going forward.