Is Exxon Mobil a Risky Investment?

With shares of Exxon Mobil (NYSE:XOM) trading around $100, 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.

Several of the largest oil companies in the world are doubling down in Russia despite moves by the West to isolate Russia and its economy. Exxon Mobil and BP (NYSE:BP) separately signed agreements with Rosneft, Russia’s state-owned oil company, to extend and deepen their relationships for energy exploration. The U.S. slapped sanctions on Rosneft CEO Igor Sechin in late April, freezing his assets and preventing him from obtaining visas. However, the sanctions do not extend to Rosneft itself, allowing Western companies to continue to do business with the Russian oil giant. Exxon Mobil signed an agreement with Rosneft, extending its partnership to build a liquefied natural gas (LNG) terminal on Russia’s Pacific coast. Known as the Far East LNG project, the export terminal will receive natural gas from Russia’s eastern fields as well as from Sakhalin-1, an island off Russia’s east coast.

T = Technicals on the Stock Chart Are Mixed

Exxon Mobil stock has struggled to make significant progress over the past couple of years. The stock is currently pulling back and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Exxon Mobil is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Exxon Mobil options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Exxon Mobil options

15.19%

46%

44%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of Monday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Exxon Mobil’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Exxon Mobil look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-0.94%

-13.18%

-14.35%

-54.55%

Revenue Growth (Y-O-Y)

-1.47%

-16.08%

-2.41%

-16.41%

Earnings Reaction

-0.97%

-1.17%

0.9%

-1.08%

Exxon Mobil has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Exxon Mobil’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Exxon Mobil stock done relative to its peers – BP (NYSE:BP), Chevron (NYSE:CVX), and Royal Dutch Shell (NYSE:RDSA) — and sector?

Exxon Mobil

BP

Chevron

Royal Dutch Shell

Sector

Year-to-Date Return

-0.98%

4.02%

-2.11%

10.59%

3.88%

Exxon Mobil has been an average performer, year-to-date.

Conclusion

Exxon Mobil is a provider of essential commodity products and services that people and companies use around the world. The company and BP separately signed agreements with Rosneft. The stock has struggled to make significant progress and is currently pulling back. Over the last four quarters, earnings and revenues have been decreasing, which has produced conflicting feelings among investors. Relative to its peers and sector, Exxon Mobil has been an average year-to-date performer. WAIT AND SEE what Exxon Mobil does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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