3 Reasons Exxon Mobil Corporation (XOM) Stock Will Retake $100

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Exxon stock - 3 Reasons Exxon Mobil Corporation (XOM) Stock Will Retake $100

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For the better part of two years, many investors hated Exxon Mobil Corporation (XOM) stock.

3 Reasons Exxon Stock Will Retake $100

The biggest of big-oil companies, Exxon became a symbol of the downward spiral in oil prices that began in earnest in late-summer 2014.

Investors punished it accordingly: From an all-time high above $103 in July 2014, XOM tumbled all the way to $72 last August.

Now that oil prices have finally bottomed, XOM stock is not only back on the rise, but it also appears to be headed to new heights. And rising oil prices aren’t the only reason.

The energy sector as a whole has been on fire amid the recent bounce-back in oil, and some believe it has become a bit overcooked. If oil prices start to drop again, that could quickly let the air out of energy stocks’ balloons.

But Exxon stock appears to have more staying power than many of its smaller competitors.

Three Reasons Exxon Stock Has the Edge

1. Sales Are Expected to Bounce Back in a Big Way Next Year

Two years ago, crude oil prices topped out above $106 a barrel. This February, they dipped below $28 a barrel. That kind of drop-off tends to weigh heavily on big-oil companies’ sales. Sure enough, Exxon’s sales have declined for four years running. That’s about to change: 2017 sales are expected to grow 33%, and should spark an even bigger increase in profits — analysts foresee a 62% improvement in earnings per share next year.

However, 2017 may seem like a long way off, and sales and earnings are expected to tumble yet again this year, as Exxon still shakes off the haze of the last two years. But it’s the kind of sharp turnaround that convinces investors to hop on board well in advance … before it’s too late.

2. The Valuation Is Still Comparatively Reasonable

When the tide turned for energy stocks, it turned in a hurry. The Energy Select Sector SPDR (ETF) (XLE), which measures the performance of some of the biggest energy stocks on the market, including Exxon, Chevron Corporation (CVX) and ConocoPhillips (COP), is up 27% since Feb. 11, easily outpacing the 14% return in the S&P 500 during that time. Because of that abrupt about-face, some energy stocks became overvalued in a hurry.

Just look at some of the current price-to-earnings ratios from some of the larger energy stocks:

  • CVX: 148
  • COP: N/A (no earnings)
  • Schlumberger Limited. (SLB): 63
  • Pioneer Natural Resources (PXD): N/A

By comparison, XOM stock looks cheap. It trades at 29 times trailing earnings, and just 20 times next year’s earnings estimates. Given the expected pickup in Exxon’s earnings next year, that’s a pretty reasonable — and attractive — valuation.

3. The Chart Is Setting up for Another Big Breakout

Here’s what the last six months for Exxon stock look like on a chart:

XOM

Three weeks after hitting a four-year low in late January, the stock was trading above its 50- and 200-day moving averages. It hasn’t fallen below either average since, and has been building a strong-looking base between $87 and $90 for the last six weeks. Eventually, a breakout will come, and with oil prices still on the rise, there’s a decent chance XOM’s breakout will be to the upside.

If XOM breaks above $90, there will be no overhead resistance to prevent it from motoring all the way to $100.

Bottom Line for XOM Stock

What a difference four months makes.

That’s how long it has taken for XOM stock to go from hopeless to red-hot. Rising oil prices have been a major factor in XOM’s resurgence. But that’s true of virtually every energy stock over the last few months. What makes Exxon stock stand out are the reasonable valuation and the coming sales and earnings boom.

My advice? Buy a little XOM now, while it’s still ping ponging between $87 and $90, and add to your position if it breaks above $90.

As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/06/exxon-stock-xom-100-retake/.

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