Donald Trump’s trusted advisor Kellyanne Conway suggested on the Today Show Dec. 12 that the president-elect would likely name his Secretary of State sometime this week. The odds-on favorite is none other than Exxon Mobil Corporation (NYSE:XOM) CEO Rex Tillerson, whose cozy relationship with Vladimir Putin provides the soon-to-be president with the perfect U.S. representative to repair the distrust that exists between the two countries. Love or hate the appointment, XOM stock holders should be jumping for joy.
Under Tillerson’s leadership, its business has gone to the dogs. Don’t believe me? Let’s have a look at the evidence.
Rex Tillerson became CEO of Exxon Mobil on January 1, 2006. If you bought 100 shares of XOM stock on the last day of 2005 at a dividend-adjusted price of $42.59, your total return on those 100 shares would be 109% or 6.9% on annualized basis.
If you did the same thing with the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), your total return would be 126% or 7.7% on an annualized basis.
What Has Tillerson Done for XOM Stock?
From that perspective, it’s not the worse scenario in the world, but it’s certainly not the kind of performance you want from the world’s biggest oil company — and it’s definitely not the kind of underperformance you want from an actively managed portfolio that includes XOM stock.
Sure, Exxon stock since the beginning of 2006 has outperformed its peers in the Integrated Oil & Gas Industry, but that’s not saying much. As a group, they’ve been awful investments. More importantly, Chevron Corporation (NYSE:CVX), the world’s third-largest oil company, outperformed Exxon Mobil by 358 basis points over the past decade on an annualized basis.
But here’s what should really irk Exxon stock owners: Rex Tillerson is the 29th highest paid CEO in the U.S. — Chevron CEO John Watson was 62nd — despite the fact its revenue fell by 35% in the most recent fiscal year.
If that’s not enough, Tillerson will be able to sell his $233 million in XOM stock tax-free as a result of George H.W. Bush implementing a 1989 tax break that said if forced to sell one’s equity holdings, they could do so without paying tax.
So, let me get this straight.
Rex Tillerson has done a mediocre job for shareholders over the past decade, yet he’s getting the ultimate retirement package simply for taking a short-term pay cut in the Trump administration. Even if he is appointed, there’s a good chance he won’t serve all four years.
Trump’s in the wrong field. Instead of casinos, hotels and golf courses, he ought to go into financial planning because the sweet deal he’s arranging for Tillerson is epic.
As much as I think this free ride is outrageous, Exxon Mobil shareholders are better to suck it up because if he doesn’t get the job you can expect its mediocre stock performance to continue.
In early November, I argued that Exxon stock is dead money. Since then it has gained about 7%. Nothing has changed in my opinion that would alter my view on its stock.
Yes, OPEC has agreed to production cuts that have pushed the price of a barrel of oil up above $50, providing some much-needed relief to big oil.
InvestorPlace.com contributor Chris Fraley believes these cuts represent a lifeline to big oil. As a result of this lifeline now might be the time for former shareholders to buy back in after abandoning ship the past two years as revenues and profits disappeared.
In fact, Fraley believes this unprecedented move by the Organization of the Petroleum Exporting Countries could lead to XOM stock testing $100 in the not-to-distant future, a level it hasn’t seen since April 2014.
Bottom Line on Exxon Stock
Personally, I’m not nearly as optimistic. There’s still a lot of oil out there and if OPEC senses the cuts aren’t working, it will drop them like a dirty rag.
But the biggest thing that will prevent XOM stock from crashing through the $100-mark are the markets themselves. A lot of people are enthusiastic about returns in 2017; I’m not one of them.
However, I’d like its chances a whole lot more if Tillerson was out of the picture. Exxon stock holders ought to feel the same.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
