Exxon (XOM) is the king of the oil industry, an entrenched player valued at almost $400 billion. But stability and scale aren’t enough to make a stock like XOM a buy.
In 2013 this stock has been stable but very disappointing, up less than 3% despite a rally for 23% for the S&P 500. Furthermore, the dividend yield at Exxon is just 2.8% — only slightly better than 10-year Treasuries.
There has been a boom in domestic production of oil and gas at Exxon, but the megacap stock is actually seeing a lot of trouble on the top line thanks to soft energy prices. Those prices contributed to an 18% earnings slide, and margins remain under pressure thanks to the increased cost of exploration and the decreased value of the oil and gas XOM brings to market.
Bulls will say a 20% decline in Exxon is impossible. However, after XOM stock traded for more than $95 in July, shares need only drift down to $76 to mark a decline of that magnitude. Yes, that would be a new 52-week low … but isn’t outside the realm of possibility.