5 Big Reasons Exxon Mobil Corporation (XOM) Stock Is Still a Buy

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When it comes to energy stocks, no one is bigger than U.S. giant Exxon Mobil Corporation (NYSE:XOM). With assets spanning the entire globe and every facet of energy production, logistics and downstream/marketing, XOM stock has truly been the one to beat when it comes to profits and rising revenues. However, things haven’t been exactly rosy for Exxon Mobil.

Exxon Mobil XOM stock

In fact, they’ve been downright terrible.

Just like much of the energy complex, the former piece of Standard Oil has suffered since the crude oil collapse that started back in 2015.

XOM stock hasn’t really fully recovered from that point in terms of profits and its operating picture. And that fact has given many investors pause on whether Exxon Mobil deserves a prominent spot in their portfolios.

However, there are still plenty of reasons as to why you should go ahead and buy XOM stock today in spite of the firm’s recent troubles. With that in mind, here are five big reasons to buy Exxon Mobil today.

Five Big Reasons to Buy XOM Stock

Upstream Finally Showing Its Worth: When your main source of profits is derived from a commodity, any dip in that the price of that commodity is going to hurt, and XOM is no different. So now that oil is finally starting to rise, Exxon is now cooking with gas. Profits for its upstream division have once again, well, become profits. For the first quarter, the company managed to generate $2.25 billion in net income from producing oil.

As Exxon Mobil stock’s largest profit generator, that’s a significant win. Moreover, production also showed a marked improvement over the fourth-quarter of 2016, with much more of that production coming from oil rather than lower-priced natural gas.

With oil prices finally starting to rise and Exxon already seeing bumps to its profits, the company is once again putting a tiger in its tank and could be returning to the XOM stock of old. Going forward, as long as oil trades in a tight range or rises, the company will be just fine on the profit front.

Opportunities for Future Growth: This sort of environment is exactly what Exxon needs to find great production growth. Assets — both prices for raw acreage and rival energy stocks — are now super cheap. XOM, with its huge cash balances, cash flows and amount of treasury stock sitting on its balance sheet can basically have the pick of the litter when it comes to adding fields, reserves and other projects. Already, it has added nearly 275,000 acres in the prolific and low cost Permian. Meanwhile, rumors are starting to circle that XOM is stalking a much bigger rival. If that buyout of BP plc (ADR) (NYSE:BP) comes true, Exxon will undoubtedly be the undisputed king of the energy world.

And even if it doesn’t buy BP, Exxon should be able to meaningfully expand given its cash on hand.

Diversification: The benefit of being an integrated energy firm is that you always have one piece of your assets doing well. When oil is high, upstream and production makes plenty of profits. When oil is down, refining leads the way. That fact has managed to save XOM over the last couple of years. While oil was crashing, refining managed to keep the cash flows and profits coming. Just look at the share price of now smaller rival ConocoPhillips (NYSE:COP) during the downturn. Without its refining assets, COP imploded. This simply wasn’t the case for Exxon as refining was able to soften the blow of the deep oil downturn.

LNG: It’s no secret that Exxon has bet its future on natural gas. But it looks like that decision is going to be spot on. As the world grapples with greenhouse gases and global warming, natural gas and LNG exporting/importing has gotten the nod from many nations and utilities. And XOM is at the forefront of this. Production in Australia has continued to rise, while it’s 25% owned Gorgon LNG project recently began its third processing train. Likewise, the company has already begun marketing LNG from its new Papua New Guinea LNG plant. This gives Exxon a huge head start versus other producers and is right in the backyard of major LNG demanders Japan and China.

Dividend: It would be neglectful to not to mention Exxon Mobil stock’s big dividend. That dividend has been increased year-in and year-out for 35 years. This includes another hike announced this past April. That’s an impressive streak for any company, let alone one that has been battling a prolonged downturn in oil prices. But don’t worry. That payout and the nearly 4% dividend yield is safe. XOM managed to generate $8.2 billion in operating cash flows during its latest quarter, while debt is relatively low for an integrated energy stock.

Overall, Exxon’s dividend is just icing on the cake for investors.

The Bottom Line on Exxon Mobil Stock

There are still plenty of reasons why Exxon Mobil stock is still a great stock own for the long haul. Several catalysts will continue to push the stock forward and ultimately, pay a handsome total return for investors. And with a forward P/E of 17 and a big 3.74% yield, XOM stock is ripe for the picking.

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

Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/5-reasons-exxon-mobil-corporation-xom-stock-buy/.

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