When it comes to Exxon Mobil (NYSE:XOM) and the energy sector, I’m incredibly bearish. However, based on its 2020 chart, I’m inclined to suggest speculative investors consider betting on XOM stock in the low $30s.
Here’s why.
XOM Stock and the Long Haul
The last time I wrote about Exxon, I argued that shareholders dodged a bullet when Concho Resources (NYSE:CXO) was acquired by ConocoPhillips (NYSE:COP). Quite simply, more Permian Basin assets are not the solution to all that ails the oil giant.
“With the pandemic in full bloom right now and a global recession is a real possibility due to more lockdowns, it’s going to take ConocoPhillips a long time to pay for the cost of its acquisition,” I wrote on Oct. 22.
“I’m no fan of XOM stock, but shareholders just dodged a real bullet from where I sit.”
If Exxon Mobil wants to revisit triple digits, it needs one of two things to happen. Either the world does a 180 and decides fossil fuels are the future, or the company unloads a bunch of its assets to unsuspecting buyers and reinvests the proceeds in renewable, green energy.
Right now, despite admitting that oil prices will remain low or fall over the next decade, Exxon chief executive officer Darren Woods continues to pound the table on behalf of fossil fuels.
“Today’s alternatives don’t consistently offer the energy density, scale, transportability, availability — and most importantly — the affordability required to be widely accepted,” Woods said in October.
This is clearly a shot across the bow of renewable energy to scare investors and consumers into following the fossil fuel mantra despite the destruction it will reap on the planet.
Like the movie Thelma & Louise, Woods wants you to follow him over the cliff, despite knowing how the story ends.
Do not buy XOM stock if you’re looking to hold for the next three or four decades. You will be sorely disappointed.
Why Buy in the Low $30s?
Have you heard the conspiracy theory that General Motors (NYSE:GM), along with the oil companies and tire makers, bought up many streetcar companies in the 1940s?
The theory was that they were buying up the streetcar companies to rip up the tracks and make way for the automobile. National City Lines acquired more than 25 transit systems in the U.S. between 1938 and 1950.
Standard Oil of California was an investor in National City. It was one of eight Rockefeller-controlled companies that used the “Standard Oil” name after the 1911 breakup of the billionaire’s empire. Standard Oil of California eventually became Chevron (NYSE:CVX) in 1984.
What’s this have to do with Exxon? Except for the shared corporate history, minimal.
However, if you’re a speculative investor, you can profit from XOM stock despite the fact the future for one of the world’s largest international oil and gas companies is less than promising.
In 2020, Exxon’s share price has rebounded on two occasions after hitting $30.
The first was during the March correction; the second was a gradual decline from June through October. In the first instance, it traded as high as $54 within three months of its March lows; in the second instance, it had recovered nicely to $42 by Nov. 24 before hitting the skids leading up to Thanksgiving.
As I write this, it’s still up 24% from its Oct. 24 low of $31.11. The one constant I’ve learned about stocks is that history tends to repeat itself when it comes to price.
The Bottom Line
Assuming the stock doesn’t go on a tear in the next month — there’s been no catalyst to justify a big run except the hope vaccines would bring about normal oil demand — I can’t see how anyone but the most speculative investors would be interested in buying XOM.
That’s especially true if it pauses or eliminates the dividend to help reduce its cash outflow.
“Startlingly, Exxon Mobil had $68.8 billion of debt as of Sept. 30. That’s a sharp increase from the $47.1 billion it owed a year earlier. All things considered, I expect that it will take more than positive vaccine-related news to fix Exxon Mobil’s long-standing fiscal issues,” stated InvestorPlace’s David Moadel on Nov. 25.
As my colleague said, Exxon has major financial issues that aren’t going to be solved without some big sacrifices; the dividend is one.
However, if Exxon Mobil hits the low $30s or even the high $20s, recent history suggests buyers will step into the breach to support it at that level. If you’ve got a very short-term hold in mind, I’d consider buying at that point.
The third time could be a charm. I would not, however, hold beyond a few months. It’s a broken stock.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
