With the price of oil recovering from April’s crazy volatility, it’s a good time for investors to reorganize their energy-sector holdings. If you’re in the market for something solid and steady, then it’s as good a time as any to seriously consider a position in Exxon Mobil (NYSE:XOM) stock.
This company boasts a market capitalization of $196 billion, which is unrivaled in the energy sector. It’s a Dow Jones Industrial Average component and one of the biggest companies in the world. With Exxon Mobil stock, you can rest easy at night knowing that the company won’t be filing for Chapter 11 bankruptcy protection anytime soon.
That’s something you might not be able to say about the lesser players in the energy space. Some of them are struggling to survive, and another oil-price crash could wipe out a handful of the smaller energy companies. Moreover, Exxon Mobil is currently taking critical steps to help ensure its longevity during these challenging times.
Don’t Join This Club
Because of the oil-price crash that took place primarily in April, there’s a growing number of energy companies joining what might be called the Bankruptcy Club. Obviously, this isn’t the type of club that anyone would want to join, or even be invited to join.
What’s so shocking about this is that some of the Bankruptcy Club’s members are, or at least were, energy-sector giants. For instance, Whiting Petroleum (NYSE:WLL) was swept up in the bankruptcy wave in April when it filed for Chapter 11 protection.
Another well-known victim of the oil shock is Diamond Offshore Drilling (OTCMKTS:DOFSQ). Indeed, it was a sad day in April when Diamond was unwillingly inducted into the Bankruptcy Club. You could almost hear the wailing of the hapless investors as CEO Marc Edwards declared that “the best path forward for Diamond and its stakeholders is to seek Chapter 11 protection.”
With the foregoing in mind, Moody’s correctly cautioned that “financial risk is rising and likely to remain very high for all but the highest-rated oil and gas issuers.” That’s a clear signal to steer clear of all but the biggest energy-sector companies. And, Exxon Mobil’s the biggest one of them all.
Prepping for an Uncertain Future
Besides its sheer size and pedigree, Exxon Mobil offers prospective investors a clear vision for the future. The next moves in the oil price are unpredictable. Therefore, energy-sector companies must remain as proactive as ever.
To begin with, Exxon Mobil continues to offer a generous forward annual dividend yield of 7.73%. That should draw in a number of income-focused investors. After all, the Federal Reserve’s bond-yield cuts haven’t exactly made so-called risk-free assets attractive.
Along with maintaining a compelling dividend yield, Exxon Mobil is taking measures to reduce its CAPEX. Specifically, the company plans to reduce its capital investments for this year to $23 billion. Previously, that figure had been $33 billion.
That represents a substantial 30% decrease in capital spending and a well-considered cost-cutting move. Along with this, Exxon Mobil plans to reduce its cash operating expenses by 15%.
But don’t get the impression that Exxon Mobil’s reneging on its commitment to invest in its future. The company still intends to fulfill its objective of a five-year, $50 billion U.S. energy-focused investment. Plus, Exxon Mobil remains committed to investing $20 billion in manufacturing facilities on the U.S. Gulf Coast.
In addition, Exxon Mobil is highly responsive to the Covid-19 crisis. In this vein, the company has ramped up its production of specialty polypropylene for use in medical gowns and masks. Exxon Mobil furthermore increased its production of isopropyl alcohol, which is sometimes used in hand sanitizer and other disinfectant products.
The Takeaway on Exxon Mobil Stock
Will Exxon Mobil join the Bankruptcy Club? Not likely, even with volatile oil prices. The company’s size and stature, along with proactive measures to stay competitive, make Exxon Mobil stock a strong buy regardless of unpredictable energy-market conditions.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular YouTube financial channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
