Building a truly diversified long-term portfolio is deceptively difficult activity. I think most money managers just slap together a bunch of stocks that have familiar names for their clients and call it a day.
Some of those familiar names, however, are familiar for a reason. That’s because they really do belong in a long-term portfolio — they truly are the best in class.
I consider “forever hold” stocks to be those you can truly place in your portfolio and never sell. Most have proven businesses in the large-cap arena, although a solid mid-cap pops up here and there.
When it comes to these names, the sector with the most to choose from is energy.
Reason #1: Energy Is a Necessity
It doesn’t take watching Mad Max: Fury Road to tell you that energy is a cornerstone of humanity. Just look around whatever room you are in right now and try to find something that doesn’t involve petroleum in either manufacturing or transport. Every single item in that room came to you by way of transport — either on a plane, train or automobile. Anything in that room made of plastic also counts. Whatever is heating that room (unless by solar) counts.
Fossil fuels make the world go ‘round; and as the number of derelict turbine farms climb, along with the fact that solar makes up 1% of energy creation, it should be abundantly clear that energy is a business you want to be invested in.
Reason #2: XOM Stock Has Solid Long-Term Prospects
So why do I choose Exxon Mobil (XOM) over any other investment? Truthfully, you can buy any of the Big Energy names, including the Energy SPDR ETF (XLE), and those will do. Yet XOM stock has, in my opinion, the best long-term prospects. It also has the best financials.
Besides having the most geographically diversified production and exploring capabilities, XOM has a pending deal with Russia that gives it even more. It owns 63 million acres of land in Russia that it can explore. Here in the U.S., there’s maybe 16 million acres, impeded by loads of environmental restrictions.
Ah, but in Russia, there are no such obstacles. Because Russia will benefit from whatever energy is pulled out, the Kremlin has no incentive to block the company. Once U.S. sanctions are lifted, XOM can get moving. Even if that takes years, Exxon is patient and XOM stock will be, too.
Since oil prices are low now anyway, I’ve got no problem with that.
Bottom Line
With over $38 billion in cash and long-term investments, XOM stock will benefit from the cash hoard to continue R&D and exploring. Even with the downturn in oil prices, XOM still generated over $5 billion in free cash flow in the trailing 12 months. Unlike many other mid-cap and shale companies, XOM stock only has $24 billion in debt, so there’s no chance of a debt crisis.
The solid financials and long-term prospects are probably why XOM stock has held up stronger than any other large-cap play during the oil price crash. The stock is just 16% off of its 52-week high. Amazingly, it is also priced about equivalently on an EV-to-EBITDA basis with its peers.
That’s a bargain if I’ve ever seen one.
As of this writing, Lawrence Meyers was long XLE.
