Exxon Mobil (NYSE:XOM) stock is great again. Over the last year, it has outperformed even Apple (NASDAQ:AAPL). It opened Jan. 21 at $73.13/share, up 48% over the last trading year, bringing the market cap to $306 billion.
Despite this, it’s relatively cheap. The dividend still yields 4.8%. If it hits the average analyst estimate for net income this year, $6.11 per share, the forward price to earnings ratio is under 12. The shares have been especially hot since 2022 started, up 19.5%.
The stock price is driven by the oil price, now almost $87/barrel for WTI Crude, the standard U.S. grade. Despite losing a proxy vote on directors last year to activists Engine No. 1 , the company is back to intimidating opponents.
Winning Two Ways
Exxon Mobil is winning on both the production side, called the upstream by oilmen, and the refining side, which oilmen call the downstream business.
The company’s exploration performance off Guyana is proving legendary. Some 10 billion barrels of reserves have been discovered. Its production there is expected to double in two years, to 220,000 barrels per day, then double again the next year.
The company’s 2017 agreement to pay $6.6 billion for leases in Texas’ Permian Basin is looking like the bargain of the century. Production in the Permian continues to break records. It should top 5 million barrels/day this month.
Downstream, Exxon Mobil is getting cheap oil from the U.S. petroleum reserve. Crack spreads, which define the profit it can expect from refining, are high and should continue to rise.
Is This the Top?
Tipranks lists 14 analysts following Exxon Mobil stock. None are now saying sell. One bull even has a price target of $100/share. Bulls say that if Exxon Mobil “can outlast environmentalists,” it can “win the decade.”
That’s not how management claims to see it. CEO Darren Woods believes prices have topped out. Burned by the last decade’s oil bust, which reversed an early decade boom, Exxon Mobil is selling U.S. assets, especially natural gas leases.
Like a wealthy adult raised during the Great Depression, Exxon Mobil is also pinching pennies. It’s locking out workers for small savings and will soon shut a 550,000 barrel/day refinery in Baytown for repairs. The squeeze will boost earnings, now expected to reach $1.90/share for the December quarter, on $77.41 billion in revenue. Those numbers are due Feb. 1.
Short Term, Long Term
XOM stock is benefitting from short-term trends. American bankers, burned by the oil bust, still aren’t lending to the industry. American shale no longer has the “whip hand” in determining oil prices. Saudi Arabia and Russia have it.
The long-term trends look more sinister. Electric car companies remain hot, and production is ramping up, from 3.5 million in 2020 to an expected 14.8 million in 2025. States are banning natural gas hook-ups. “The campaign to ban gas stoves is heating up.”
The Bottom Line
XOM stock is a cigarette stock. Like Altria (NYSE:MO) and Philip Morris (NYSE:PM), it’s something you buy for the dividend. The stock’s 2021 rise was a pleasant surprise for investors, but that’s not why they’re in it.
No one believes cigarettes don’t cause cancer anymore. No one, except oil industry extremists, pretends climate change isn’t real.
Exxon Mobil may be just paying lip service to becoming carbon neutral, but the planet can’t afford to wait. Extreme weather, caused by climate change, cost $145 billion last year. That toll will rise with time.
The plan is for Exxon Mobil to slowly liquidate, and hope shareholders can keep the profit.
On the date of publication, Dana Blankenhorn held a long position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at [email protected], tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.