Is Exxon Mobil a Good Investment In Any Environment?

With shares of Exxon Mobil Corporation (NYSE:XOM) trading at around $91.45, 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:

C = Catalyst for the Stock’s Movement

Exxon Mobil has been one of the steadiest investments throughout the broader market since the 1970s. The current size of the company is nearly incomprehensible.

Savvy investors love Exxon Mobil for many reasons. One simple reason is that its size makes it resilient to market corrections. Will there be downswings? Of course. But those savvy investors are well aware that Exxon Mobil will always bounce back. Therefore, even if the stock gets slammed, it’s an opportunity to add to a position. Theoretically, someone could only trade Exxon Mobil through his or her entire trading career and do well. When times are good, there isn’t much to do but sit back and enjoy. The 2.80% yield will widen that smile a little more when the stock is appreciating. When times are bad, the only requirement for success is patience and the ability to add to a position. In some cases, there might be a great deal of patience required. However, eventually, that individual’s position in the stock will increase, which means even brighter days ahead than during the last run-up. It sounds like a nice life, but very few people have the guts to implement this game plan.

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For those who aren’t familiar with Exxon Mobil, here are just a few positives:

  • Profit margin of 10.86%
  • ROE of 28.26%
  • Enormous operating cash flow of $50.48 billion
  • Dividend yield of 2.80%
  • Superb historical stock performance
  • Quality debt management
  • Unfathomable profits
  • Excellent capital allocation
  • Analysts love the stock: 7 Buy, 16 Hold, 1 Sell
  • Trading at only 9 times earnings
  • Resiliency in bear markets
  • Superior technology and planning compared to peers
  • Increasing international demand thanks to emerging markets
  • Developed largest natural gas field in the world
  • 89% of employees approve of CEO Rex W. Tillerson

What more could investors possibly want?

Believe it or not, there are a couple of negatives. One, domestic demand is weak. Two, revenue declined in 2012. Revenue also declined last quarter on a year-over-year basis. Is global demand actually weakening? And what will happen to global markets once Ben Bernanke takes his foot off the gas?

These are concerns, but Exxon Mobil isn’t a high-growth technology stock trading at over 100 times earnings. In other words, Exxon Mobil isn’t for momentum traders looking to make a quick buck. Exxon Mobil is a long-term investment for those with patience. The point here is that Exxon Mobil is a long-term winner.

The chart below compares fundamentals for Exxon Mobil Corporation, BP plc (NYSE:BP), and Chevron Corporation (NYSE:CVX)

XOM BP CVX
Trailing P/E 9.28 6.05 9.19
Forward P/E 11.08 7.45 9.74
Profit Margin 10.86% 6.05% 11.89%
ROE 28.26% 18.32% 19.47%
Operating Cash Flow 50.48B 20.96B 36.14B
Dividend Yield 2.80% 5.00% 3.30%
Short Position 1.00% N/A 1.00%

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

T = Technicals Are Strong

Exxon Mobil has been a steady performer over the past three years.

1 Month Year-To-Date 1 Year 3 Year
XOM 1.40% 6.80% 16.76% 65.21%
BP -1.04% 5.82% 18.17% 29.00%
CVX -0.54% 14.24% 25.85% 88.13%

At $91.45, Exxon Mobil is trading above its averages.

50-Day SMA 90.28
200-Day SMA 89.24

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for Exxon Mobil is stronger than the industry average of 0.30.

Debt-To-Equity Cash Long-Term Debt
XOM 0.08 6.21B 13.41B
BP 0.35 28.28B 46.42B
CVX 0.10 19.05B 14.14B

E = Earnings Have Been Excellent

Investors who want to see large and steady profits head straight to Exxon Mobil.

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 477,359 310,586 383,221 486,429 482,295
Diluted EPS ($) 8.69 3.98 6.22 8.42 9.70

Looking at the last quarter on a year-over-year basis, revenue declined and earnings improved.

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Quarter Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012 Mar. 31, 2013
Revenue ($) in millions 124,053 127,363 115,710 115,173 108,807
Diluted EPS ($) 2.00 3.41 2.09 2.20 2.12

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

Conclusion

This article has been heavy on optimism, but please keep in mind that this pertains to the long haul. A deflationary environment is a possibility in the coming years. If this type of environment presents itself, then Exxon Mobil will have to deal with some challenging times. However, as hinted at several times earlier, Exxon Mobil is a long-term OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

All content posted should not be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions. I don’t have any positions in this stock.