It was a good run. Exxon Mobil (NYSE:XOM) was a stalwart of the Dow Jones Industrial Average (DJIA) for 92 years. Let’s put that in perspective. Exxon Mobil stock was part of the DJIA before the Great Depression. Despite the Exxon Valdez oil spill, one of the largest in history, the stock remained on the exchange.
But just like that, XOM stock got the boot. It made it through the original New Deal. If you believe reports, it’s become a casualty of the nascent Green New Deal. And that means investors have to decide if the stock got a raw deal.
A Casualty of the Culture?
As Exxon Mobil stock exited the Dow, a perfect storm emerged for climate change activists. Wildfires raged across California causing 100,000 to flee. The Gulf coast got hit by not one, but two, hurricanes in a week.
According to May Boeve, executive director of 350.org, the Dow was forced to cut ties with Exxon who Boeve branded as “climate criminals.”
“Big Oil has fallen,” Boeve said. “Our job is to make sure they don’t take us down with them. Fossil fuel companies like Exxon knew and lied for decades about the main cause of the devastating impacts we’re now experiencing across the globe …”
Or Was It Just Performance-Based?
This is where Occam’s Razor is helpful. You can believe that after 92 years the members of the S&P Dow Jones Indices decided that climate change was now going to decide which stocks should be listed as part of its exclusive group. That’s a quaint notion in today’s day and age.
Or there could be a simpler explanation. One that gets to the core of the matter. As Will Ashworth wrote about the delisting, “In today’s day and age, there’s no need for two oil companies in an index of 30. And Chevron (NYSE:CVX) is the better of the two.”
Put another way, Exxon Mobil stock stinks. And it doesn’t appear to be getting better anytime soon.
XOM stock has performed horribly this year. It’s down over 42% for the year despite a recovery of nearly 30% from its March low. Investors already knew that it was going to be a rough year for oil stocks. The plunge in prices is due to an unprecedented drop in demand.
Even with a recovery that is gaining steam, it is likely to take some combination of rapid response testing that is widely available, along with proven therapeutic treatments to move the needle on the economy. Ultimately a vaccine is the plan, but the closer we get to a viable vaccine, the trickier that seems.
Now here’s where the climate activists are right. There is no telling when, or if, demand will get back to pre-pandemic levels. The public health crisis is giving the electric vehicle movement the time it needs to develop its infrastructure. And that says nothing of airlines and cruise ships which present their own challenges.
Should You Buy Exxon Mobil Stock?
Wherever you fall on the climate change scale from zero to Al Gore, there’s an inconvenient truth to our renewable energy future. It’s going to require carbon technology to get us there. That means that in some form or fashion, Exxon Mobil will still have relevance even as we seek a world with cleaner energy.
It seems that younger investors may be buying into that narrative. Exxon Mobil stock is one of the 100 most popular stocks on Robinhood. However there’s no compelling reason to buy Exxon Mobil stock. Even the company’s eye-popping dividend yield is not what it seems to be. In fact, Ashworth explains why the company’s decision to stand by its dividend looks like a desperate move.
That being said, if you are investing your values and choose not to buy XOM stock, I respect that decision. But just don’t be misled into thinking that this event was about anything other than the stock’s performance.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.
