Exxon Mobil (NYSE:XOM) stock looks like a good bet amid the current boom in oil stocks.
The company’s share price has been pushing higher in recent months as oil prices touched 14-year highs amid the war in Ukraine and escalating geopolitical tensions.
Year to date, XOM stock is up 29%, bringing its gains over the last six months to 50%. Exxon Mobil’s stock is trading near levels last seen in spring 2019, That was nearly a year before anyone had heard of Covid-19 and when there was peace across Europe.
However, oil prices remain volatile and prone to big swings. West Texas Intermediate crude oil, the U.S. benchmark, ran as high as $123.70 a barrel on March 8 only to fall to $102.85 on March 14. Despite the price swings, Exxon Mobil has a lot to recommend it as one of the premier American oil companies and a long-term investment.
Big Profits
Like all oil majors, Exxon Mobil suffered during the pandemic when oil prices around the world collapsed along with demand.
The run higher in energy prices since last fall has helped Exxon Mobil recover lost ground. On Feb. 1, before Russia invaded Ukraine, Exxon Mobil reported its largest profit in seven years, largely due to the rising price of oil both in the U.S. and abroad.
The company announced a profit of $8.87 billion for the fourth quarter of 2021, declaring that its earnings have now topped pre-pandemic levels.
While rising oil prices certainly helped the bottom line, they weren’t the only factor. Profits were helped by the $6 billion in cuts to the company’s operating expenses it started during the pandemic and accelerated last year.
For Q4 2021, Exxon Mobil reported an adjusted profit of $2.05 per share, which was $0.11 better than analysts’ forecasts. The company says that, with oil prices above $100 a barrel, it plans to raise its production in the U.S. shale basin by 25% this year.
Additionally, Exxon Mobil announced in its Q4 report that it paid down $20 billion of debt in 2021, further helping it to recover from the pandemic’s impacts.
Other Benefits
In addition to big profits, Exxon Mobil has undertaken a $10 billion share repurchase program that it plans to complete within two years. Plus, XOM stock pays a dividend yield of 4.33% or $0.88 per share, per quarter.
The share repurchase program and dividend yield provide additional value and should be enticing amid global risks and increased volatility. Management also outlined plans at an investor day held in early March to increase Exxon Mobil’s profitability over the next five years.
If there is one risk to ExxonMobil, it is that oil prices could fall back below $100 a barrel sooner than expected. The U.S. is doing its best to bring prices at the pump back down for consumers, having recently released 60 million barrels of oil from the strategic petroleum reserves.
However, there are concerns that the Organization of the Petroleum Exporting Countries (OPEC) is not going to increase production enough in the wake of Russia’s attack on Ukraine to bring oil prices significantly lower. Many analysts have penciled-in $150 and even $200 oil prices later this year.
That kind of increase would prove to be a further boon to XOM stock.
Buy XOM Stock
Volatility persists in the oil market and the broader stock market. This is cause for ongoing concern. However, Exxon Mobil and its shareholders are benefitting from that volatility as oil prices remain above $100 per barrel.
In the near term, Exxon Mobil’s stock can be expected to rise along with higher oil prices. However, apart from the near-term price of oil, Exxon Mobil’s management team has done a lot to position the company for sustained, long-term success.
This includes cutting costs, boosting profitability, and paying down debt. Throw in a dividend yield above 4% and a $10 billion stock buyback program. Exxon Mobil looks extremely appealing as a long-term investment. Keep an eye on geopolitical matters, for sure. But XOM stock is a buy.
Disclosure: On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
