Exxon Mobil (NYSE:XOM) is an oil and gas stock, which means it’s been a poor candidate for growth. In fact, the company has been in slow decline over the past five years. Now, 2020 has accelerated that into a rapid collapse. With an oil price war, the pandemic and a stock market crash, the value of XOM stock plummeted over 50% in the first three months of the year. However, after closing at $31.57 and coming within a hair’s width of its March low near the end of October, the stock has rallied.
Currently trading around $39, XOM has put together a run that’s seen it gain over 20% in the past three weeks. So, is now the time to get onboard in anticipation of a full-blown recovery? No.
Sure, there is the potential for a quick win here — although you’ll need to watch closely and get out again before getting burned. But there have been multiple occasions throughout 2020 — outside of the March stock market crash — where XOM stock has lost 7% or more in a single session. Essentially, this rally is doomed to run out of steam.
Rare Optimism Fuels XOM Stock’s Rally
On Oct. 30, Exxon Mobil reported third-quarter earnings. It was the third-straight quarter of losses. This time XOM was $680 million in the red, for an adjusted loss of 18 cents per share. However — although its hardly worth celebrating — the report was actually better than the market had expected. Wall Street was anticipating a 25 cent per share loss. The company also topped revenue expectations, with $46.2 billion for the quarter. Investors were relieved to hear the company was maintaining its dividend as well.
That earnings report — which would have sunk XOM stock in happier days — was good enough to boost shares around 4% the next day.
Other factors have been helping to increase optimism for oil and gas as well. In particular, recent news of effective novel coronavirus vaccines have raised hopes for a return to normalcy. The theory is that, with the pandemic beaten, people will return to work. That means they’ll be commuting by car and start flying again. As such, the demand for oil and gas could return to pre-pandemic levels — prices would rise and companies like Exxon would recover.
However, the reality is that any recovery for Exxon Mobil may be short-lived.
Long-Term Trends Do Not Favor Oil and Gas
Why is the return to normalcy theory short-sighted? Because the pandemic has kickstarted movements that were already working against oil and gas.
Awareness of climate change — and the determination to do something about it — is increasing. What’s more, the pandemic showed that working from home and cutting business travel can be done.
On top of that, adoption of electric cars is accelerating, with EV stocks on fire in 2020. Also, with zero emission solar and wind-generated electricity becoming more widely available, a growing number of cities are also banning natural gas heating in new buildings. Single use plastics — which are made from oil — are increasingly being outlawed, too.
So, it may turn out that 2019 was the year of peak global oil consumption. If so, the lower demand in 2020 is not a blip — it’s the beginning of a permanent decline. That does not bode well for XOM stock and its investors.
You’ve read my thoughts on XOM, but am I a lone pessimist? Are any investment analysts buying the prospect of an Exxon Mobil recovery?
To be honest, you’re not going to find a lot of fans of this troubled oil stock. Out of the 25 analysts covering the stock, 17 rated XOM as a “hold.” The remainder are pretty evenly split between “buy” and “sell.” Now, their median price target of $44 does offer 13% upside — I suppose that’s something to consider if you’re not risk adverse. But the future simply does not look promising for this oil and gas company.
The bottom line on Exxon Mobil? Don’t buy the XOM stock rally — especially if you’re looking for an investment that delivers long-term growth.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.