As you likely know, shares in Exxon Mobil (NYSE:XOM) have soared in recent weeks due to Russia’s war with Ukraine, and the resulting rise in energy prices. These latest gains for XOM stock are on top of its strong performance since the end of 2020, when oil and gas began to make a comeback.
With its tremendous rise in price, you may think it’s too late to dive in. What’s gone up must come down, right? Not so fast. Unlike some situations where investors have become overly excited about a stock, the enthusiasm with Exxon is more than justified.
For starters, trends bode well for its results in the quarters ahead. I’m not going to speculate about the direction of oil prices. But as the geopolitical situation stays chaotic, and helps extend the inflation once regarded as just “transitory” in nature, there’s a strong chance that crude oil prices stay high.
Second, beyond these short-term events, which in time could prove to be a one-and-done windfall, the integrated oil giant has a plan in place that may result in solid returns for shareholders over the next few years. Reasonably priced, and a high-yield dividend payer to boot, if you think you’ve missed out on it, think otherwise.
The Latest With XOM Stock
When I last wrote about it last month, on the eve of Russia’s Ukraine invasion, I argued that in a time of high geopolitical risk, buying ExxonMobil was a great way to ride things out.
It has only been two weeks, but so far that thesis has played out. At the time of publication, it was in the high-$70s per share. Now, XOM stock is changing hands for around $90 per share.
The post-invasion spike in oil prices of course has played a big role in this. With the U.S. and its Western allies imposing harsh economic sanctions on Russia, crude oil has jumped from around $91 per barrel, to over $115 per barrel. According to Reuters, a majority of analysts polled believe this rally can carry on, as extra supply from OPEC fails to make up for the disruption.
In turn, this points to a continued move higher in ExxonMobil shares as well … at least in the short-term. Months down the road, if more than $100 per barrel oil jolts the company’s top and bottom lines, we could see an additional boost for the stock.
But a possible extended rise in oil prices, which can be tough to predict, isn’t the only catalyst on the table. Other efforts, things more in the company’s control, stand to help shares stay a winner in 2022 and beyond.
Exxon’s Long-Term Plan to Create Shareholder Value
When it comes to XOM stock, all the attention right now may be placed on its exposure to the run-up in energy prices. Yet there’s another recent development that should make you very bullish on it.
That would be the projections ExxonMobil laid out in its March 2 investor day presentation. During the call, management detailed its plans to increase its profitability over the next five years. It plans to achieve this through a combination of initiatives. For one, through cost reduction efforts. In addition, via wise capital allocation.
Instead of less-certain projects, it’s pursuing ones that offer a low-cost-of-supply. It’s also investing more into its chemical and downstream (refining and marketing) units. Together, its game plan could result in its earnings and cash flow to come in at double 2019 levels by 2027.
The takeaway? Only time will tell where energy prices go from here.
The aforementioned crisis, along with other inflationary pressures, could push oil up to $150, perhaps even $200 per barrel. It could also de-escalate sooner than expected, resulting in oil diving back to double-digit prices. But it’s using a conservative price estimate for oil five years out. Doubling prices during this time frame may be achievable, even if crude oil gives back its 2022 gains, and trades sideways going forward.
The Verdict on XOM Stock
Earning an “A” rating in my Portfolio Grader, don’t assume the ship’s sailed with ExxonMobil. Its recent rally is more than sustainable, assuming current geopolitical conditions continue.
Whether oil’s at $115 per barrel, or back to sub-$100 per barrel prices, it could see its earnings rise significantly. If that’s not enough for you, here are two other things that you may find appealing. Trading for just 11.5x expected earnings, there’s no denying it’s a value play. With a dividend yield of 4.19%, it’s a great income play for what remains a low interest rate environment.
Since the opportunity with XOM stock goes beyond just geopolitics, I consider it a buy.
— Louis Navellier and the InvestorPlace Research Staff
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Source: Investor Place