With the awful impact of the novel coronavirus pandemic, the oil industry — let alone individual names like Exxon Mobil (NYSE:XOM) — faces a steep uphill battle. Not only that, the sector is in a knife fight, one in which it will survive. However, it will not emerge unscathed. But figuring out which companies will survive the onslaught is looking like a fool’s errand. Therefore, the best you can do is to stay away, even from blue chips like XOM stock.
Obviously, the contentious presidential election will play a significant role for the oil industry’s future. As you know, former Vice President Joe Biden courted controversy regarding his stance on fracking. During the last debate, Biden stated that his administration would call for a “transition” away from fossil fuels. That alarmed voters, many of whom depend on the oil and gas industry for high-paying jobs.
In a last-ditch attempt to close the gap in the polls, President Trump’s reelection campaign team have relentlessly attacked Biden as essentially being a jobs killer. However, based on the latest polls, the advantage that Biden has may not be assailable. I’m not suggesting that the former VP has a guaranteed path to the White House. However, we must be realistic: there is at least a good chance that he will become the President.
Naturally, such a statement is not going to please Trump’s loyal supporters. However, what many people fail to realize is that even if the incumbent wins a second term, it will do nothing to divert the winds of change. Yes, I suppose that a Trump administration could keep XOM stock somewhat relevant for a little while longer. But in the long run, clean alternative energy is the future.
You only need to look at the demographics of the U.S. to arrive at this conclusion. One of the distinguishing attributes of millennials to older generations is that they care more about the environment and sustainability. Plus, their willingness to pay for sustainable products sets them apart, which isn’t great news for XOM stock.
Moreover, the emerging Generation Z is aligned with millennials on key social and political issues, according to the Pew Research Center. Thus, we’re looking at decades of sentiment geared toward clean energy. That’s why Exxon Mobil, unless it dramatically changes its business, is staring at irrelevancy sooner or later.
Outside Fundamentals ‘Conspire’ Against XOM Stock
I’d be naïve to assume that the clean energy infrastructure doesn’t feature some partisan sentiment. After all, it’s the Democrat Joe Biden that’s aggressively pushing for a zero-emissions economy. However, what’s different about the modern era is that the end result of this green economy is enjoyed by all parties.
One of the most conspicuous pieces of evidence here is the dramatic rise of electric vehicles. Sure, they don’t have the raw sensations that you get from driving Detroit muscle. But increasingly, consumer tastes for vehicles have shifted, first to practical, go-anywhere SUVs to now EVs. And thanks to the immediate response of the electric platform, many EVs feature supercar-like acceleration.
Another factor that appeals to consumers is that EVs have fewer moving parts than combustion-engine cars. Frankly, that probably wasn’t something that people thought about while they were commuting to work in the pre-pandemic days. But after the coronavirus upturned everything, many realized just how vulnerable their combustion cars were to globally supply chain disruptions.
Theoretically, EVs should perform better in future disruptive events. Plus, this next-generation platform doesn’t require as much frequent maintenance, such as oil changes. That’s a double whammy for XOM stock: the loss of combustion cars on the road and the frequent maintenance that goes with this old school technology.
In fairness, it’s going to take years for EVs to claw away at the current dominant presence of traditional cars. But in the meantime, the Covid-19 pandemic has been an absolute disaster for XOM stock and the competition.
As the Bureau of Transportation Statistics reported, a significant number of Americans are choosing to stay home, despite several months into this crisis. In addition, the number of trips that are between one to 25 miles is substantially deflated relative to year-ago levels. The latest indicators suggest that frequency of trips are continuing to decline, which isn’t surprising based on rising coronavirus infections.
Commoditized Businesses Are Tough Sells
To be clear, transportation statistics should improve over the long run. Therefore, well-run airliners, for example, should provide handsome profits for contrarians at these sharp discounts. But XOM stock? At the end of the day, you’re talking about a commodity. And commodities are tough to distinguish from others.
As things stand, you’re looking at a war of attrition for the oil industry. It will come down to who will provide the lowest price, not about which company offers the more compelling service or product. That’s not a game investors should play right now, especially during this uncertain period.
On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, neither Matt McCall 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.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.