The roots of Exxon Mobil (XOM) go back to the 1870s, when the legendary John D. Rockefeller built Standard Oil. The company has been able to navigate the many inevitable busts in the crude markets while still finding ways to remain a dominant player. Then again, Exxon stock has benefited from its massive scale, tremendous resources and focus on disciplined execution.
As for the latest plunge in the crude markets, it seems that the company will yet again benefit.
Even if oil prices don’t rebound any time soon, it’s a good bet that Exxon stock will still be a solid investment for patient investors. The same was true during other recent periods when crude oil languished, whether in the 1980s or the 1990s.
Now, given all the scary headlines lately, it is still probably tough to pull the trigger on any energy stock. Even the world’s best investors have a tough time finding the exact bottom. Rather, the key is to seek out long-term value — and Exxon stock looks like a very good choice right now.
Here are four factors that make XOM compelling at current levels:
Buy Exxon Stock for… The Secular Trend
According to a research report from Exxon Mobil, the forecast increase in global population is for an additional 2 billion people by 2040. XOM believes that demand will increase by a hefty 25% as a result.
Even though wind and solar will get a bigger share, Exxon Mobil still believes that traditional sources like crude oil, natural gas and coal will remain the market share leaders, with about 80% of the demand.
But there should be some near-term catalysts as well. Let’s face it, the drop in oil prices is already starting to result in less drilling across the globe, which should help get supply-and-demand in better balance. At the same time, the low energy prices should also help to encourage overall demand.
Buy Exxon Stock for… Its Integrated Platform
XOM has strong footprints in all the main areas of energy production and distribution. For example, businesses like refining, chemicals and retail outlets have helped to cushion the problems with the fall in crude prices. Interestingly enough, not long ago there was much pressure from Wall Street to unload these businesses, but Exxon Mobil resisted.
As for the latest quarter, the earnings for the downstream segment saw a $1 billion increase to $2 billion, and there was a $1.2 billion profit in the chemicals unit. Keep in mind that these results came despite the negative impact from foreign exchange rates.
Actually, in Q3 XOM was still able to post an impressive $4.2 billion in overall profit. This means that the company will have the resources for its dividends as well as its long-term investments in promising areas like Nigeria, Romania, Colombia and Kazakhstan.
Buy Exxon Stock for… The Financials
XOM is one of only a handful a companies that sports a AAA credit rating. But this should be no surprise as the company continues to be a strong cash generator. During the first three quarters of 2015, cash flows from operations came to about $27.6 billion.
The massive scale of XOM allows for more efficiencies, of course. But the company also has a focus on cost cutting. For 2015, XOM generated a net reduction of $8 billion in capital and cash operating costs.
Because of hefty cash flows, Exxon stock has been able to maintain a hefty dividend, with a yield of 3.8%. The company has continued to buy back shares, as well, although the buybacks have been moderated lately because of the downturn in the industry.
Buy Exxon Stock for… The Dealmaking
Exxon stock has actually done well on a relative basis, with a return of -17% during the past year. By comparison, Chevron (CVX) is down about 22% and Royal Dutch Shell (RDS.A, RDS.B) has lost a grueling 37% of its value.
All in all, XOM still has a hefty market cap of more than $300 billion, which should allow for aggressive dealmaking. And of course, the assets are extremely cheap right now. XOM could also buy even some large operators, such as ConocoPhillips (COP) or Occidental Petroleum (OXY). Both companies have market caps below $50 billion.
So going forward, acquisitions are likely to be another important catalyst for long-term growth — and XOM looks nicely positioned to benefit.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
