No stock you can buy today is more closely tied to the fate of the Trump Administration than Exxon Mobil Corporation (NYSE:XOM).
Since the November election its CEO has been whisked off to become Secretary of State, while the company he left behind has doubled-down on policies aligned with those of the new Administration.
This makes Exxon a must-own, according to some analysts. “It is hard to imagine a better scenario” for Exxon than a Trump administration, writes Martin Tiller of Oilprice.
If Tiller is right, XOM stock is a bargain at below $83 per share, its opening price on Feb. 15. The 75 cents per share dividend delivers a yield of 3.62% and the future should be looking bright.
The price is low because of a recent earnings miss but the shortfall was mainly due to a one-time write-off of natural gas assets. Exxon plans to boost spending.
Betting on More Oil and Gas
Exxon Mobil is taking the administration’s call to increase production seriously. Its $6.6 billion purchase of Permian Basin assets controlled by the Bass Family means it should be able to deliver oil profitably for 20 years to come, at current prices.
The company is also moving ahead globally, benefiting from the end of a rule that made companies disclose foreign bribes.
Exxon is a big player in Iraq, and Tillerson may be the only person alive who can make that work, getting around the Administration’s travel ban and Trump’s comments that the U.S. should have seized the country’s oil in 2003 when it had the chance.
Shareholders have also approved XOM’s purchase of Interoil, a producer of oil and gas off Papua New Guinea, with a lot of undeveloped acreage and one of the region’s biggest gas finds that is already producing.
This should leverage the company even more than it has been to the price of oil, which has risen from about $45 per barrel to $53 since Trump’s election. Natural gas is also flirting with a three-handle, or $3 per mcf, after trading closer to $2 per mcf last November.
Target on Its Back
There remain big risks for Exxon Mobil bulls. Exxon’s big bets have put a target on its back, highlighted by the resignation of environmentalist Sarah Labowitz from a company advisory board. The company has responded to the threat by naming a climate scientist, Susan Avery, to its board of directors but that will not be enough for its opponents.
Exxon also faces the perennial risk of having too much of a good thing.
Just as its gains are leveraged to rising oil prices, overproduction could cause the stock’s price to fall. Add to that the natural risks attendant to owning refineries, and the present bargain in Exxon Mobil stock may not last.
The Bottom Line on XOM Stock
I would be more attracted investing in Exxon Mobil stock if the Trump Administration’s month-plus record so far didn’t read more like a Carl Hiassen novel than a Tom Clancy one.
The company has enormous potential but it cuts both ways. The shares now sell for little more than they did in 2007. While the dividend has doubled, revenues have continued to decline for the last three years.
If we are on the cusp of a new oil boom, XOM stock will be a prime beneficiary. It’s well positioned to profit from even $53 per barrel oil. But how long will the good times last as costs for renewable energy continue to fall, making it harder for developing nations to justify the infrastructure investment needed to make oil and gas look cheap by comparison?
Exxon Mobil may be a good trade, and it may have a few good years ahead of it, but the longer-term looks cloudy and Trump won’t be president forever.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
