Investors Shouldn’t Waste Their Energy on ExxonMobil Stock

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Xom stock - Investors Shouldn’t Waste Their Energy on ExxonMobil Stock

Source: Mike Mozart via Flickr (Modified)

Investors looking for bargains in the stock market after Friday’s bloodbath need to remember that some shares are “cheap” for a good reason.  ExxonMobil (XOM), the largest publicly traded oil company, is case in point.

XOM stock looks like a good value at first blush. Its price-to-earnings ratio currently is 16.93, well under rivals such as Chevron (CVX), which sports a multiple of 18.89, and ConocoPhillips (COP), which is valued at 19.27. The stock of the Irving, Texas-based company also is trading near its 52-week low and analysts see better times ahead for Exxon stock. Their average target price is $89.69, roughly 7% above where it currently trades.  XOM also pays a dividend with a yield of 3.8%, which beats the yields on Treasury Bonds.

A closer look, however, shows that there are much better options for investors than XOM stock in the oil sector. CVX stock, which like XOM has been beaten up this year, and COP both have more upside potential.  The average 52-week price target on CVX stock is $146.28, more than 20% above where it currently trades. Wall Street analysts are expecting COP stock, which has already surged more than 30% this year, to continue its tear. Their average 52-week price target on COP is $83.16, roughly 14% higher than where it is currently trading. As for XOM’s dividend, investors can do better in that department as well.  The average yield of companies in the S&P 500 is more than 4%.

Company-Specific Issues

XOM has disappointed Wall Street in 4 out of the past 5 quarters. The company’s latest miss was blamed on higher-than-expected maintenance costs at its refineries and high oil prices eroding profits at its petrochemical plants. Management’s track record also doesn’t inspire confidence

XOM’s $31 billion acquisition of XTO Energy in 2009 expanded Exxon’s foothold in the natural gas market when prices were at their highest levels in 5 years. After the market tanked, the company wound up taking a $2.5 billion write-down on the value of its natural gas assets, including XTO.  It also abandoned a controversial joint venture in Russia in the wake of international sanctions.

Then there’s the company’s planned $200 billion in spending on new oil and gas projects through 2025 at a time when rivals such as Royal Dutch Shell, Total, and BP are making a big push into renewable energy. It’s a big gamble. As Bloomberg Businessweek recently noted, “

“The risk, of course, is that Exxon gets caught on the wrong side of history, producing fossil fuels that consumers don’t need, that governments don’t want, and that are a major cause of climate change.”    

Final Word

In summary, the risks associated with owning XOM stock far outweigh the rewards.

Jonathan Berr is an award-winning freelance journalist who has focused on business news since 1997. He’s luckier with his investments than his beloved yet underachieving Philadelphia sports teams.


Article printed from InvestorPlace Media, https://investorplace.com/2018/10/investors-shouldnt-waste-energy-exxonmobil-stock/.

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