After a promising start to 2019, oil giant Exxon Mobil (NYSE:XOM) has since spent most of the year disappointing shareholders. While it’s no consolation to those who have a heavy position in XOM stock, the bearishness is at least understandable. Due to multiple domestic and global headwinds, not many sectors have been left unaffected.
But adding to the troubles for Exxon stock is the underlying company’s U.S. Securities and Exchange Commission 8-K filing. Essentially, this document has given Wall Street an important clue as to what Exxon Mobil expects for its upcoming third-quarter earnings report. Most alarmingly, management anticipates Q3 revenue to come in at $3.1 billion, down half what it hauled in for the year-ago quarter.
It’s already bad enough that since the April 23 session, XOM stock has dropped more than 18%. This has leveled year-to-date returns, leaving Exxon stock flat. Tacking on a disastrous Q3 seems like a guaranteed continuation of volatility.
Admittedly, Exxon stock has been a rough play in recent years. Thus, it may not be suitable for risk-intolerant investors. But if you’ve got the stomach, Exxon Mobil can surprise you. Here are three reasons why.
No One’s Panicking on XOM Stock
Thanks to the internet, information travels lighting quick. And when Exxon Mobil filed its 8-K disclosure, every analyst on the block poured into the numbers.
Of course, no one particularly liked what they saw. Furthermore, Exxon stock has taken some heavy hits as of late. October is still incredibly young, yet shares are down almost 4% since this month’s opening price.
Despite every reason to blast XOM stock, though, analysts have largely remained muted in their response. For instance, UBS analyst Jon Rigby and Mizuho’s Paul Sankey kept their “neutral” ratings and their respective price targets.
On the more bullish end of the spectrum, Bank of America analyst Doug Leggate maintained his “buy” rating. Additionally, he kept his $100 price target.
Now, I’m not suggesting that anyone base their decision on XOM stock strictly on analysts’ opinions. However, I think it’s more than interesting that no one is really clanging the bell. And as Leggate wrote, the company’s revenue downgrade is “largely a consequence of commodity changes with no material operating issues to change the go forward investment case.”
Exxon Stock to Benefit from Green Energy Delays
Seemingly, every time I watch the news, two distinct themes pop up: why someone hates President Donald Trump and why we need to worry about climate change.
If you think I’m going to wade into these debates, think again. I already have enough people hating me and I don’t necessarily need more.
But it’s safe to say that underlining the latter issue is the alternative energy movement. Prior to the modern era, going green was somewhat of a chore. Thanks to companies like Tesla (NASDAQ:TSLA) or Nio (NYSE:NIO), though, conserving the environment became fashionable. Theoretically, the rise of electric vehicles and other alternative fuels impose a headwind on XOM stock.
However, that case isn’t so clear cut. According to Gavin Harper, the University of Birmingham’s energy development manager and author of “Fuel Cell Projects for the Evil Genius,” the science of alternative energies often clashes with the economics.
Harper said that due to the relative mechanical simplicity of EVs, they’re easier to introduce at low volume. But this changes with scale.
“As you scale to much larger percentages of ultra low emission vehicles in the vehicle parc, suddenly the infrastructure challenges with EVs become more challenging — vehicles take time to charge so you need an awful lot of infrastructure to service these vehicles, it also introduces a great many new loads onto the grid,” Harper told me in an email interview.
And what about hydrogen-powered vehicles? Harper wrote that “The infrastructure problems with hydrogen are really challenging — you can’t achieve the density of filling stations economically.”
While alternative energy sources are duking it out for future dominance, fossil fuels are ready now. That augurs well for Exxon stock for the foreseeable future.
Political Threat to Exxon Mobil Is Overstated
Interestingly and perhaps worryingly, Real Money contributor Stephen Guilfoyle mentioned a possible political threat against XOM stock. Specifically, Guilfoyle warned that:
“Presidential candidate Elizabeth Warren, who appears to be juggernaut at the moment, proposed an aggressive plan to tax heavily those corporations or trade associations that spend heavily themselves on lobbying the federal government. That tax, under her plan starts at 35% on lobbying based expenditures and scales up to 75%, as such spending also scales higher. This is not a political statement. Just an observation that such a plan would impact negatively a firm such as Exxon Mobil.”
Indeed, if Warren is elected, Exxon stock faces serious risks. However, investors probably shouldn’t overreact here. That’s because The Guardian’s Jessica Valenti bravely exposed an ugly component of American politics. In her words, she bluntly stated, “We just don’t trust women.”
In her 2016 article, Valenti quantifiably exposed a double standard in how Americans perceive politicians based on gender. I believe that Valenti has a valid case because very few individuals would claim that Trump represents a moral benchmark. Yet significantly more Americans trusted Trump over former Secretary of State Hillary Clinton.
To be fair, the Clinton name arouses distrust among conservatives not based on gender, but rather on political allegiances. Nevertheless, I find it curious that the rest of the world doesn’t mind female leaders. But in the U.S., we apparently have an issue with it.
This is not a political statement, but rather, a political reality. Cynically, it also benefits XOM stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
