In the current social environment, justifying an investment in Exxon Mobil (NYSE:XOM) represents a tall order. First, the concept of big corporations has fallen out of favor with the millennial generation. Second, Exxon stock is emblematic of a bygone era. Today, people care not just about a company’s production quality, but its environmental impact.
According to a Gallup poll, millennials are the largest demographic in the U.S. workforce. Combined, they lever $1 trillion in consumer spending power. More critically, 73% of millennials stated that they would “spend more for sustainable products.” Obviously, Exxon Mobil and XOM stock don’t quite fit that narrative.
And it’s not just sentiment that has shifted from one generation to another. Because millennials are willing to back their ideologies with their wallets, businesses of all sizes must accommodate this trend. Otherwise, companies risk both revenue losses and PR challenges. Apparently, Exxon Mobil has listened.
According to our own Wayne Duggan, Exxon stock is a “high-yield transformation story.” Despite threats of irrelevancy, Duggan argues that the oil giant is a name you shouldn’t ignore. Specifically, he sees Exxon Mobil shifting from the “big oil” category to “big energy.” This transition has involved initiatives such as partnerships with renewable energy organizations.
Of course, critics are quick to argue that this is all a publicity stunt. At the heart of XOM stock is an investment in fossil-fuel energy sources, not renewable ones. Yet Duggan states that Exxon is incentivized to earnestly make this transformation.
That’s a very good point. However, I’ll go one step further. Even if the oil giant was disingenuous about its green initiatives, the current environment is still favorable for Exxon stock.
Overrated Clean Energy Has Limited Impact on Exxon Stock
If you turn on the news, it’s admittedly tough to generate confidence toward XOM stock. For instance, one of the most popular people in the media today is a Swedish teenager named Greta Thunberg. She made news for yelling at world leaders and hobnobbing with Hollywood actor and environmentalist Leonardo DiCaprio.
From what I can gather, she’s the Kim Kardashian of climate change.
And in this fierce ecosystem, we have companies like Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO) forwarding electric vehicles. Featuring zero emissions and uber-cool designs, EVs genuinely appear poised to replace the backward technology of internal combustion engines. If so, that would portend terribly for Exxon stock.
Except there’s one problem: where does electricity come from?
Back in the run up to the 2016 presidential election, many people called Donald Trump dumb – well, folks used more colorful language – for advocating coal. Yet surprisingly, “The Donald” had his heart in the right place.
In the U.S., fossil fuels represent the largest contributors for electricity production, with natural gas ranking first. However, coal comes in second place, generating 27% of U.S. electricity – not too far off from natural gas’ 35%.
Thus, driving an EV doesn’t make you more of an environmentalist than eating a salad at McDonald’s (NYSE:MCD) makes you an animal-rights activist.
Moreover, the present push for EVs and other alternative energies overlooks the fact that electricity demand will skyrocket both here in the U.S. and especially abroad. While renewable energy sources are constantly improving, they won’t improve their capacity enough to accommodate humanity’s increased numbers.
Therefore, Exxon stock is not only relevant but inevitably so. A fossil fuel replacement will never occur because future demand will be overwhelming.
Infrastructural Problems to Keep XOM Stock in the Game
Even if accelerated adoption of EVs occur, I wouldn’t let that detract you from Exxon stock. First, whether you like it or not, fossil fuels are entrenched deeply into the American infrastructure. Necessarily, EVs have a cap on their practical maximum production output because not everyone owns a garage.
Furthermore, we live in a fast-paced society that will only get faster with technologies like 5G. How then will people react when they must transition from one- or two-minute fill-ups to half an hour? Of course, EV proponents argue that technology may drastically reduce this recharge time. However, technology can also improve conventionally powered vehicles too.
Plus, most if not all EV and alternative-energy vehicle companies are at least somewhat speculative. Since they’re dealing with new technologies, they’re focused on growth and integration. In other words, EVs don’t pay dividends.
However, big oil investments are known for their passive income because they’re known commodities. And in this uncertain time in world affairs, some semblance of reliability is worth a premium.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.