The energy sector has been buried — and rightfully so. That includes Exxon Mobil (NYSE:XOM), which saw a peak-to-trough decline of 57% earlier this year. Worse though, the 2020 peak for Exxon Mobil stock was near $67.50, well below its all-time high up near $81 from 2014.
To put it simply, XOM stock has struggled for a while.
However, there are some positives developing for this name. First, energy prices have recovered. That’s going to help Exxon on both the top and bottom lines. Second, the stock market has recovered. While the energy sector continues to lag, taking pressure off these two markets will bode well for Exxon Mobil stock.
Finally, this one still has a solid dividend yield and the charts are beginning to improve. Let’s dive a little deeper.
Breaking Down Exxon Mobil Stock
At one point during the pandemic, we saw oil futures turn negative. Yes, negative oil prices. It was just one of the insane moments investors faced at a time of extreme volatility. Since then though, the landscape has been slowly but surely improving for energy companies.
Oil prices have rebounded sharply from the lows and have steadied out in the low-$40s. Natural gas prices have been under pressure, but are now beginning to gain some upside momentum.
The problem that these companies face is obvious. We were already in a state of adequate supply when it came to oil. However, lower economic activity — including flights, cruises, commuting and commerce — is resulting in lower demand for oil.
Producers are responding in a manner to soften the blow of lower demand — by lowering production — but with so much supply left to tap on a whim, it will likely be difficult for a sustainable rally to occur in the oil market.
However, thanks to its size, Exxon Mobil is going to survive the difficulties in the energy market right now. Analysts expect a loss of 18 cents per share this year, before a rebound to $1.54 per share in profit in 2021. The company was also able to maintain its dividend payout.
The current yield sits at 8% and while somewhat concerning, the company keeps on paying. It may lose its standing as a dividend aristocrat if it fails to raise that payout this year, but simply maintaining it is a feat in itself.
Last quarter, Exxon missed revenue estimates by more than $5.5 billion when it reported $32.6 billion in sales. However, management continues to cut costs and is on the right path, despite the painful environment it’s in right now.
Trading XOM Stock
Risk-reward is a common investment and trading principle. Put simply, investors want an attractive risk-reward setup before deploying their hard-earned dollars in a specific security or asset.
When I look at the chart of Exxon Mobil stock, I see that $40 has been solid support. Even though shares have clearly been struggling to gain upside momentum — as evidenced by the fact that it’s below all of its major moving averages — support has been intact for months now.
A break below $40 changes things a bit, first putting the 23.6% retracement in play near $38. Below that and more selling pressure can ensue. However, with this in mind, investors can buy Exxon Mobil stock with a low-risk profile, knowing they can stop out on a close below $40 if they so desire.
On the upside, bulls will be looking for the stock to reclaim the 20-day and 50-day moving averages. Above puts the August high in play at $45.52. Above opens the door toward $50 and the 200-day moving average.
Investors who do not like the single-stock risk of Exxon Mobil, can go with something like the Energy Select Sector SPDR ETF (NYSEARCA:XLE) or add other large-cap names like Chevron (NYSE:CVX) to the mix.
At the end of the day, the sector does not have the same bullish fundamentals driving it higher. To be clear, it is not a short-term bet on the upside. However, if oil demand picks up, these names could go on a run.
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.