Investors, masters of the knee-jerk that they too often are, went way overboard reacting to the news that Pfizer (NYSE:PFE) has closed in on a novel coronavirus vaccine. Hours afterwards, “stay-at-home” stocks such as Peloton (NASDAQ:PTON) were punished. Because of course, they’re going away forever and no one’s habits have changed in the least. (In fact, Peloton wiped out the losses and rallied 9% on Nov. 10 after announcing a multi-year deal with Beyonce. Ha.) Meanwhile, the energy sector rallied as well with Exxon Mobil (NYSE:XOM) and its XOM stock up more than 11% since Nov. 6.
But hold on an antiviral minute. First, Pfizer’s success in Phase 3 trials does not equal a vaccine in hand. Second, even if it did, vaccines will not pop up in your mailbox next week along with coupons for the local pizzeria; widespread distribution would be months away.
And lastly, the petroleum sector has been a loser for years. Once the hullabaloo dies down, and President-elect Biden throws his power behind alternate energy, fossil fuels will face the same headwinds they did before Covid-19. If not more. Will Exxon Mobil, given its size and might, somehow find a safe passage around them? With XOM stock hanging in the balance, it’s a question worth asking.
XOM Stock: Oil and Troubled Waters
Given the $155 billion market capitalization at its command, Exxon Mobil could easy pivot to the forefront of green energy sources. That’s not an all-or-nothing proposition, either. The Standard Oil descendant could easy keep significant financial resources in oil as well. But if past is prelude, XOM stock represents a dinosaur too married to its dinosaur byproduct. And if Stubbornosaurus doesn’t evolve, it could well go Exxtinct.
Flash back to Sep. 1, when the Dow Jones Industrial Average kicked out Exxon Mobil. As Bloomberg put it, the move marked “a particularly stunning reordering, reflecting the steady decline of commodity companies in the American economy.” Imagine that. The company was the world’s most valuable as recently as 2011.
Going back to the disastrous Exxon Valdez tanker spill of 1989, Exxon Mobil has always, always stood on the wrong side of clean energy history, protecting its oil investments with foot-dragging and deception aplenty.
In 2016, Greenpeace extensively outlined Exxon Mobil’s role in environmental impact denial dating to 1957. While the Trump administration’s pro-oil stance may have swept all that nastiness under the rug for a time, a Biden administration in 2021 certainly won’t enable it. Is the behemoth behind XOM stock ready to adapt and make amends?
After the Mini-Rally, Still a Hold
On Oct. 5, Bloomberg ran another story bylined by Debbie Downer with a headline that pretty much said it all: “Exxon’s Plans for Emissions Surge Revealed in Leaked Documents.” Exxon Mobil of course objected. But what do all major oil companies do in an instance like this? The Exxon Tiger mascot certainly didn’t don a sheepish grin and say, “Oh well, you got us!”
While some would consider any petroleum investment a “sin stock” to begin with, the allegations dogging the company couldn’t come at a worse time for Exxon. Fighting climate change is a cause célèbre. Exxon Mobil’s sin stock reputation stands to multiply to despicable and unpopular lengths.
As for the analysts, a few have revised their sell rating but not many. At present, XOM stock remains a hold for 17 out of 25, with three calling it a sell and five calling it a buy. At $44.93 per share, the current price target seems too optimistic as it would reflect a 25% jump.
Why the Analyst Optimists Are Off
Huh? We have Exxon removed from the Dow Jones. Lots of negative publicity surrounding Exxon Mobil’s allegedly sneaky emissions surge plan. An oil-friendly administration on its way out. And gas prices depressed as ever, even as the EV sector continues to ramp up production.
I’d love to be wrong. But if I were a betting man, I’d say 25% up is about 20% too far in the wrong direction. Minimum. Among other things, the latest XOM stock price target came out before Election Day and as they like to say at the local Investment and Archery Club, the target is moving.
Meanwhile, does Pfizer’s great news mean they’ve landed a vaccine to cure the woes of XOM stock as well? Not a chance. As on Nov. 10, AAA put gas prices at a nationwide average of $2.11 per gallon. The last time it was above $3, Joe Biden was our vice president.
No Covid-19 cure, no spontaneous combustion of every windmill in America, no oil executive’s fantasy of every electric vehicle plant turning into kitty litter, is going to stop this train now. The petroleum sector is on the wane and has been for some time. In fact, XOM stock has been on a consistent slide since 2014. Trying to thread this needle and find some hidden profit potential is literally like trying to stuff a tiger in your tank.
On the date of publication, Lou Carlozo held a long position in PFE.