Exxon Mobil (NYSE:XOM) has been underperforming the overall stock market this year, with shares up less than 1 percent. Meanwhile the S&P 500 is up nearly 5 percent. Investors are getting a great opportunity to rotate out of some outperformers at this point to put money to work in an undervalued, safe, diversified, and recession-resistant stock—namely Exxon Mobil.
Exxon Mobil is the world’s largest integrated oil and gas company with a market capitalization of about $440 billion. The stock has largely underperformed its peers over the past couple of years as investors are concerned that it isn’t growing production quickly and that profits are flat. But I think the company is prepared to generate very strong returns in the long run. I also think that the current market environment is idea for a stock such as Exxon Mobil. Here’s why.
First, interest rates are low, and this benefits companies such as Exxon Mobil that have excellent credit ratings. Exxon Mobil is well positioned to borrow money inexpensively if it finds investment opportunities. Since this market has the potential to become volatile, this should benefit shareholder as the company can potentially pick up assets inexpensively, particularly in regions that are geopolitical hotspots now but which won’t be forever (e.g. Russia, Iraq). For example Exxon Mobil recently borrowed money to fund an investment in Vietnam, and it had no trouble raising this capital.
Second, with geopolitical tensions in the Middle East and in Eastern Europe the prices of oil and natural gas are rising. As an oil and gas producer Exxon Mobil is positioned to benefit. Oil stocks may perform extremely well in this situation as rising energy costs hurt virtually every segment of the economy except for energy stocks. This means that we can see a lot of money flow into these stocks as it exits others.