Shares of Exxon Mobil (NYSE:XOM) have been beaten, battered and bruised. I don’t think it needs much highlighting to describe how painful of a ride it has been, with Exxon Mobil stock still down over 42% from its 2020 highs made on Jan 3.
Obviously, the decline in oil has been a major catalyst for the fall in Exxon Mobil. That goes for the fall in energy stocks across the board. From peak to trough, the commodity has lost more than half of its value, while the energy sector has been the worst-performing group in the S&P 500 year-to-date.
Not to bore too deep into the details, but at its low, XOM stock was down more than 57% from its 2020 highs and down 63% from its five-year high.
Unprecedented Situations
We have a unique situation driving energy stocks at the moment. As tensions grew between some of the world’s largest oil producers, crude oil was already under pressure. However, red flags were rising once the coronavirus began its rapid spread throughout China. With many regions and cities going under lockdown, demand from China fell.
Remember, oil is supply-demand driven. Meaning that, when supply goes higher, prices go lower. When demand goes higher, prices go higher. The opposite forms are true as well, and the market does its best to balance the supply-demand dynamic.
With demand around the world plummeting due to COVID-19, that’s been a big negative for crude oil prices. On top of that painful development, though, came an even worse development: a price war.
Tensions between Saudi Arabia and Russia boiled over, as producers began flooding the market with supply. Their goal was to break the backs of weaker and high-cost producers, taking back control of the oil market.
Crude oil began the year north of $60 per barrel, and recently plunged to $20. Reports are now out — mostly due to comments from President Trump — that OPEC may come back to the table to agree on a production cut, which will help level out the supply-demand dynamic. It gave a huge bump to crude prices on Thursday April 2, which climbed more than 24% in a record-setting session.
However, a failed agreement could very well send oil prices back down toward $20.
Fossil Fuel Isn’t Leaving
Despite all the lumpiness in the sector, investors should realize that fossil fuels aren’t going anywhere. While electric vehicles, solar power and other alternative sources will continue to grow, fossil fuels still have decades of use left in the tank, particularly at these prices.
For buyers, they will want to avoid the low-quality energy companies. For many, that means sticking to some of the biggest in the group, like Exxon Mobil stock, Chevron (NYSE:CVX), BP plc (NYSE:BP) and a few others.
Even though the share prices are down enormously, many of these names still present opportunity, assuming one’s investment horizon is long enough.
A Closer Look at Exxon Mobil Stock
Below is a 15-year monthly chart. There are no moving averages and the chart is adjusted for dividends.
Click to Enlarge
We’re seeing a solid rebound in Exxon Mobil stock now but need to see it clear this $41 to $42 area. Above it puts $50-plus on the table. If it can’t reclaim the $41 to $42 area, or it does but fails to hold it as support, Exxon Mobil could retest its lows near $30.
If that’s the case, see that shares hold $26.50, should they fall that far. I know a lot of fundamentals investors don’t like technicals but blending the two could have prevented some big losses. Hindsight is 20/20, but once the $60 to $62 area gave way, technical investors knew more downside was in store (although likely not this much downside).
From here though, keep in mind that as goes oil, so goes Exxon Mobil stock.
At last count, Exxon had over $24 billion in long-term debt. However, total assets of $362.6 billion easily topped its total liabilities of $170.9 billion. That’s an overly simplistic way of looking at it. But investors who are looking to pick energy stocks will want to go with those that will still be around and avoid going belly up.
Investors who want to avoid single-stock risk and are looking for a more diversified play can consider the Energy Select Sector SPDR ETF (NYSEARCA:XLE). XOM stock is the top holding in the exchange-traded fund, weighing in at 21.8%. Chevron is the next largest, at 20.8%, as the two companies make up more than 42% of the ETF.
Kinder Morgan (NYSE:KMI), EOG Resources (NYSE:EOG) and ConocoPhillips (NYSE:COP) round out the top five holdings in the XLE. Lastly, the ETF’s top 10 holdings comprise 75% of its weighting.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
