It’s known as a top Dog of the Dow. But buying Exxon Mobil (NYSE:XOM) stock for its income stream may be a mistake. Still and as a strong-looking contrarian investment, the possibility for outsized future capital gains in Exxon Mobil stock should be enough to keep many other investors quite satisfied.
Oil and gas giant Exxon is a blue-chip stock with more than its share of difficulties in 2020. To say the least, its prospects look nothing like Dow Jones Industrial peers Apple (NASDAQ:AAPL) or Microsoft (NASDAQ:MSFT), whose fortunes have skyrocketed this year.
Amid producer-based trade wars and growing alternative energy demands backed by improving technology and increasingly competitive solutions, conditions off and on the price chart of Exxon Mobil stock were already challenging the energy outfit entering the calendar year. And it’s no secret XOM’s headwinds have only grown in the face of the novel coronavirus.
Since the global pandemic began and over the past two quarters Exxon has delivered consecutive wider-than-forecast losses, weaker margins, and sharply lower sales volumes tied to global oversupply and Covid-related demand impacts.
Yup, business has been bad for XOM. And during the worst days of the broader market’s record-breaking bear market, it was even worse for its shareholders as outsized relative weakness tanked the stock to levels last seen in 2004.
The good news is Exxon Mobil isn’t going anywhere. EV champ Tesla (NASDAQ:TSLA) is increasingly popular with consumers. Awesome! SolarEdge Technologies (NASDAQ:SEDG), First Solar (NASDAQ:FSLR), Ballard Power (NASDAQ:BLDP) and others are lubricating today’s reinvigorated green revolution. Hurray!
Sadly, alternatives require fossil fuels like XOM’s to drive those green, but not nearly as green touted technologies. And petroleum-based products are everywhere, from the time we wake up and until we go to sleep.
Even outspoken and progressive filmmaker Michael Moore believes we’re being sold a bill of goods as it relates to today’s green future. Agreeably, it’s not a leap of faith to believe Exxon’s current red ink and supply/demand challenges will, despite or because of today’s dire oil warnings, be put in the rearview mirror.
Exxon Mobil Stock Monthly Chart
Investors could look at Exxon’s generous dividend of more than 8% and consider a stock purchase solely for its income. But I think that’s a mistake. Considering everything that’s been said and despite Exxon’s management maintaining its commitment to the payout, the real payday for XOM shareholders needs to be a strong change in the stock’s technical character, with or without the dividend remaining intact. And it’s looking more likely that positive outcome could happen soon.
Exxon’s illustrated monthly chart which reveals broken trendline and Fibonacci supports dating back into the 1980s reflects an extremely out-of-favor investment. But charts are fluid. Moreover, in the face of XOM’s awful sentiment and June’s massive and bearish shooting star candlestick, the stock has continued to hold (loosely) critical make-or-break technical support.
Net, net, I’m optimistic of a price recovery in XOM stock. For like-minded investors unconvinced the end is near for Exxon, other than an extremely bearish cycle, the recommendation is to buy shares above $44.75.
This above-the-market purchase enters XOM on modest technical strength as shares clear the July high for a second time. It also waits for the stock to trade slightly above the candlestick bodies of the prior three trading months following March’s historic bottom. I’m upbeat a fourth attempt could be the charm.
The Bottom Line
Under the outlined conditions, I’m willing to view XOM as a core stock holding without relying on today’s dividend. That being said, I wouldn’t advise investors compromise the position further by failing to use a hedged collar or other alternative reduced risk strategy.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
