For those with a heart for the environment, Exxon Mobil (NYSE:XOM) stock is not an easy name to love.
Yes, the Exxon Valdez oil spill is now 21 years past. But it still ranks as one of history’s most calamitous, no thanks to foot-dragging on the energy giant’s part.
Nor have the controversies exactly dried up. In 2015, research-based news stories outlined Exxon’s role in climate change denial. In fact, calling XOM stock a “sin stock” would hardly constitute a stretch for environmentalists.
Regardless of your stance on this issue, other factors come into play when you weigh the worthiness of XOM stock. The energy sector has spent years now in a fuel-injected funk. Behemoth legacy companies aren’t exactly head-turning investments these days. Exxon is even said to be weighing a dividend cut. For investors, it’s all pain at the pump, without the gain.
While you can rest assured Exxon Mobil’s not going anywhere, the near-term question of where it’s headed concerns many shareholders. Truly, it’s time to drill down and see where XOM stock ranks as a blue-chip play.
Strike that: a former blue-chip play.
XOM Stock and the Dow Jones Boot
While it may not mean much in terms of long-term financial impact, the investor optics were horrid when the Dow Jones Industrial Average kicked out Exxon effective Sept. 1. As Bloomberg put it, the move marked “a particularly stunning reordering, reflecting the steady decline of commodity companies in the American economy.”
To think: A share of XOM stock gave investors, as recently as 2011, a piece of the world’s biggest company. But on Wall Street, where memories of the good old days run shorter than a sea slug’s attention span, 2020 brutalized XOM stock. We’re talking about a fall that has slashed share prices by slightly more than half.
Quick, someone jam a tanker-sized plug in this oil company’s shareholder spill.
Meanwhile, the average price of a gallon of gas in mid-September fell two consecutive weeks to $2.17, according to GasBuddy. And guess what? It’s even lower right now, at $2.16. The last time Exxon saw gas at $3 a gallon, President Barack Obama was in the middle of his second term.
Headlines Hopeful And Brutal
Still, there exists some cause for optimism where XOM stock is concerned. On Oct. 13, Goldman Sachs lifted Exxon to a neutral rating; previously, it had rated XOM it as underperform. Such news won’t trigger Black Friday-style stampedes to snap up shares. But it does at least signal a change in sentiment among Wall Street’s heavy-hitting firms. With Goldman shifting gears, 18 of 27 analyst firms now give XOM stock a neutral-equivalent rating.
But all that sorta-good news could be effectively countered by a Bloomberg story that ran Oct. 1. It asserted that the energy monolith “likely made a third consecutive loss in the last quarter,” which in turn could signal a potential cut in its $15 billion-a-year dividend. The article further asserted that “the last time the company generated enough free cash to cover its dividend was the third quarter of 2018.”
For a brutal black-eye encore, Bloomberg then ran a story just four days later with a headline that pretty much said it all: “Exxon’s Plans for Emissions Surge Revealed in Leaked Documents.” Exxon of course objected, stating among other things that, “The projections identified in the leaked documents have significantly changed, a fact that was not fully explained or prominently featured in the article.”
Again, not an easy company to love.
Hands Off Exxon For Now
Rest assured: Headlines these days have a way of vanishing faster than wasabi on the tongue. Unless Exxon is planning to enlist Marvin the Martian to blow up the Earth, I can’t see allegations of emissions hanky-panky bothering the market too much. Not that we should take such stories lightly, but their impact where investors are concerned is often minimal.
That established, we must at least consider the case for XOM stock hitting a bottom that screams “Buy me!” As recently as mid-2014, it traded for just above $100 per share. Today it only fetches $34, but a company this huge cannot be dismissed outright. With a market capitalization of close to $146 billion, Exxon has enough firepower on reserve as it waits for external circumstances to turn in its favor.
I take delight in the words of billionaire Warren Buffett, who has repeatedly made the case for buying into certain battered stocks when they’re “on the operating table.” Does XOM stock fit the bill?
Arguments can be made for and against, depending on how you view prospective recoveries in the energy sector and economy. If Exxon can assail these rough headwinds and transcend its short-term troubles, things would look promising. One market expert has even floated the idea of a merger with Chevron (NYSE:CVX).
It’s an intriguing scenario. Exxon, Mobil and Chevron all trace their origins to the breakup of John D. Rockefeller’s Standard Oil in 1911. But as much as my imagination wants to wander, reality has a more no-nonsense imperative: Don’t hold your breath and hang on to your money.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.