Does Exxon Mobil Have the Potential for New Highs?

With shares of Exxon Mobil (NYSE:XOM) trading around $101, 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.

Already the largest natural gas producer in the U.S., Exxon Mobil is doubling down with plans of entering the world of plastics. Announced last year, Exxon plans to expand its Baytown, Texas facility to convert natural gas into polyethylene. One of the most common plastics in the world, polyethylene is known for its use in plastic bottles but can also be used in kitchen bags, wraps, industrial piping, and numerous other products. A relatively new trend with the rise in price of crude oil streams and the low price of natural gas, Exxon could be poised to take the lead in the natural gas-to-plastic industry. However, despite what may look like a diversification of revenue for its natural gas plays, Exxon is treading dangerous waters by exposing itself to the same type of risks the rest of its portfolio is vulnerable to.

A large portion, if not all, of Exxon’s portfolio is exposed to the potential shifts in industry and politics regarding climate risk. While it could possibly be an important source of revenue down the line, this transition into plastics leaves Exxon open to the emerging technology of bioplastics, a technology that is showing increasing promise and could significantly reduce the lifetime of gas-to-plastic plants, especially if gas prices rise. One such example is Newlight Technologies, LLC. As stated on its site, Newlight was “founded out of Princeton University and Northwestern University in 2003. Newlight has developed, patented, and commercialized the world’s first commercially-scaled carbon sequestration technology able to produce a high-performance thermoplastics that can match the performance of oil-based plastics and out-compete on price.”

T = Technicals on the Stock Chart Are Strong

Exxon Mobil stock has struggled to make significant progress over the past couple of years. However, the stock is currently trading near highs for the year and looks poised to continue. 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 signal neutral to bullish price action in the near-term.

XOM

(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

17.06%

13%

10%

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

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an 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 minimal 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?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-13.18%

-14.35%

-54.55%

6.00%

Revenue Growth (Y-O-Y)

-16.08%

-2.41%

-16.41%

-12.29%

Earnings Reaction

-1.17%

0.90%

-1.08%

-1.52%

Exxon Mobil has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Exxon Mobil’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

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

Exxon Mobil

BP

Chevron

Royal Dutch Shell

Sector

Year-to-Date Return

0.63%

3.89%

1.71%

7.39%

4.40%

Exxon Mobil has been a poor relative performer, year-to-date.

Conclusion

Exxon Mobil is a provider of essential commodity products and services that people and companies use around the world. Announced last year, Exxon plans to expand its Baytown, Texas facility to convert natural gas into polyethylene. The stock has struggled to make significant progress, but is currently trading near highs for the year. Over the last four quarters, earnings and revenues have been decreasing. However, investors have been pleased with recent earnings announcements. Relative to its peers and sector, Exxon Mobil has been a poor year-to-date performer. WAIT AND SEE what Exxon Mobil does this quarter.

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.

More From Wall St. Cheat Sheet: