Investors who have waited for a good entry point in Exxon Mobil Corporation (NYSE:XOM) now have their chance, given that shares of the Texas-based integrated oil giant has fallen almost 10% year to date, trailing the 7% decline in the Energy Select Sector SPDR ETF (NYSEARCA:XLE).
XOM stock, now the worst-performing equity in the Dow Jones Industrial Average, closed Friday at $81.61, losing about 1% last week and down more than 10% in three months. And if you’ve held XOM stock over the past year, you’ve lost about 1%, compared to 12% rise in the XLE.
Concerns about a global oil supplies glut last week sent oil prices below $50 per barrel, reaching three-month lows including a 9% decline since last Tuesday.
Notably, the decline in oil has come even as the Organization of the Petroleum Exporting Countries decided to cut production in November to support the market. Exxon peers such as BP Plc (ADR) (NYSE:BP) and Chevron Corporation (NYSE:CVX) have also been under pressure, losing 10% and 8% of their value for the year to date, respectively. last week’s report by the Energy Department noted that U.S. oil stockpiles had risen by 8.2 million barrels over the past week.
Reasons to Bet on XOM Stock
With crude inventories rising, investors fear that the likelihood of oil prices reaching $60 or $80 per barrel at some point in 2017 could be over. But in the case of Exxon, now seems like a good time to bet on XOM stock, which pays 3.7% annual dividend yield, and has not reflected the improvements the company has made. On Thursday Exxon announced that it is taking a 25% stake in a natural gas project offshore of Mozambique at a cost of about $2.8 billion.
The company, which has almost $4 billion in cash on the balance sheet and another $22 billion in operating cash flow, is still betting on itself. The offshore Mozambique field could hold up to 85 trillion cubic feet of natural gas. To that end, CEO Darren Woods, who replaced long-time CEO Rex Tillerson who left in January to become U.S. secretary of state in Donald Trump’s administration, called the acquisition a “strategic investment [that] will enable Exxon Mobil’s LNG leadership and experience to support development of Mozambique’s abundant natural gas resources.”
Earlier this year, Woods also expressed optimism about long-term projects in areas such as Russia, Qatar, the United Arab Emirates and Angola, which will all begin this year. When combined, these projects are expected to boost Exxon’s production in a range of 4 million and 4.4 million barrels of oil equivalent per day in the next three years. This compares to 4.1 million barrels per day in 2016. And when oil prices do rebound, XOM will be in a strong position to capitalize.
Bottom Line for Exxon Mobil
The near-term outlook for oil prices might not look good, but Exxon, which is the most oil-weighted name in the industry, is not going anywhere. And with XOM stock priced at just 16.6 times fiscal 2018 earnings-per-share estimates of $4.89, calling for 20% growth, XOM stock should reach $100 in the next 12 to 18 months, delivering 20% returns.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.