C = Catalyst for the Stock’s Movement
The big drivers of the current drop are fiscal cliff fears and tax rates. Return to recessionary conditions will not be good for anyone and investors concerned about higher capital gains and other taxes in 2013 are cashing in right now. Once that selling has subsided, buyers may return to pick up the pieces. There is a potential for a major upward surge in the unlikely event the Congress actually gets its act together and passes a long-term deal like the grand bargain that fell into the trash bin of history last year. Don’t hold your breath, but anything is possible. A nice move upward in trading on November 19 may be a harbinger of good things to come.
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H = High Quality Pipeline
In the oil business, pipeline means proven reserves and exploration assets. For Fiscal Year 2011, Exxon reported proved reserves of crude oil, natural gas liquids, synthetic oil, and natural gas of 25 billion barrels. Despite what you read about Peak Oil, numbers like these coupled with Exxon’s ongoing exploration and acquisition activities are a good sign Exxon will be around for decades as smaller rivals fall by the wayside.
E = Equity to Debt Ratio is Close to Zero
Exxon has a strong balance sheet with low debt to equity ratio of 0.07 and more total cash on hand of $13.1 billion than total debt of $12.4 billion. Smaller rival Conoco Philips (NYSE:COP) has debt to equity at 0.42 with total debt of $24.9 billion against only 1.3 billion total cash on hand. Larger competitor Chevron (NYSE:CVX) also has a strong balance sheet with total debt of 12.3 billion against total cash of $21.6 billion and a debt to equity ratio at .09.
A = A-Level Management Runs the Company
Faced with the prospect of dwindling reserves of conventional sources of oil and gas, Exxon management went unconventional and bought XTO energy, a major player in shale exploration and production in 2010 and XOM is not done buying yet, turning their eyes northward to Canada. That is the kind of move a forward-looking thinking A Level Management Team makes. In the short run some question the move, but no one anticipated the unbridled success of shale that drove producers to oversupply and prices to drop. This move bodes well for Exxon’s future.