Friday, March 04, 2005

Investment Roundtable - Exxon Mobile (NYSE: XOM)

This week the Investment Roundtable is analyzing Exxon Mobile (NYSE: XOM). XOM is a member of the Dow Jones Industrial Average, has a market cap of a little over $405 billion, and is the world’s largest publicly owned integrated oil company.

Exxon is obviously a play on the oil industry and the rising oil prices have been helping XOM appreciate 58.34% in a little over a year. With all of the chatter these days regarding oil prices everyone knows about this industry...yep, everyone. According to the “experts” oil could head either toward $35 a barrel or upwards to $80 a barrel, which is very helpful to the average investor. You will note that I have made my predictions regarding oil prices on this blog and have so far been vindicated. I stated, “I tend to agree with the BCA (Bank Credit Analyst). I don’t think we will see under $40 for quite a while, if ever again.” Check out the link for chart and all.

We are going to see steady to higher oil prices for the foreseeable future. Do we want to invest in Exxon then? I don’t think you missed the boat here and I would definitely wait for either a pull back or some consolidation. XOM has appreciated in price 17% in a month or so. I don’t chase stocks. I’m not a momentum investor and I don’t pretend to be. I’m a long-term investor who enjoys the simple life. I don’t drive over 100 mph and I don’t purchase stocks that have exploded skyward in such a short amount of time.

With regards to Exxon, I don’t believe we are going to uncover any hidden gems by scouring through the fundamentals. XOM is a play on the oil industry, which is a play on oil prices. I truly believe it is as simple as that. But, to keep with the theme of this blog I will peruse the fundamentals that Benjamin Graham was so fond of.

P/E 16.2 = Yes, Benjamin Graham criteria requires a P/E below 20

Price/Book 3.96 = No, BG criteria requires a P/B below 1.5

Current Ratio 1.4 = No, BG criteria requires a CR above 2.0

Revenue Growth 7.49 = No, RG should be above 15% according to Mr. Graham

Intrinsic Value $55.10 = No, BG likes the stock price to be below IV by at least 15%

Yield 1.7%

XOM passes 1 ½ Benjamin Graham tests out of 6 (I gave ½ a point for the yield), which equates to a grade of 25%. Let’s take a look at what the Guru page over at nasdaq.com had to say about XOM with regards to BG criteria.

It seems that according to nasdaq.com’s interpretation of Benjamin Graham’s criteria, XOM would have gotten a 56%. Here are the details:

SECTOR: [PASS]

XOM is neither a technology nor financial Company, and therefore this methodology is applicable.

SALES: [PASS]

The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. XOM's sales of $298,035.0 million, based on trailing 12 month sales, pass this test.

CURRENT RATIO: [FAIL]

The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. XOM's current ratio of 1.40 fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS]

For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for XOM is $5,013.0 million, while the net current assets are $17,396.0 million. XOM passes this test.

LONG-TERM EPS GROWTH: [PASS]

Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. XOM's EPS growth over that period of 137.9% passes the EPS growth test.

P/E RATIO: [FAIL]

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. XOM's P/E of 16.21 (using the current PE) fails this test.

PRICE/BOOK RATIO: [FAIL]

The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. XOM's Price/Book ratio is 3.97, while the P/E is 21.80. XOM fails the Price/Book test.

I do like the oil sector along with most of the commodities, but I will wait for the right moment to buy into this trend. So, let’s see when that “intelligent” moment might be by taking a look at some charts. I will, as always, start with the monthly view.


Click to Enlarge Monthly Chart Posted by Hello

Obviously, using hindsight, the perfect point to get into XOM would have been when it broke out in February 2004. That would have really been great, but the Investment Roundtable has to decide if we would invest right now. My answer would have to be a no...not right now. Look at that really long candle that just occurred. That's a move! I would like to wait for a consolidation of some sort or wait for a move back down to the current uptrend line.


Click to Enlarge Weekly Chart Posted by Hello

The weekly chart does give us one more support line to look at, which is just one more piece to the puzzle. I would venture a guess that XOM will come back down to these uptrending lines. This might even occur when the two uptrending lines converge at a point. We shall see, but that would be a good point to look to jump onto this trend.


Click to Enlarge Daily Chart Posted by Hello

The addition of the daily chart shows that there is some short-term resistance at $64/share. We can hope that this new resistance might send XOM back down to our buying levels. The RSI and Stochastics are at overbought levels, but XOM has been trending very hard rendering these technical indicators near useless. The weekly and monthly RSI and Stochastic levels are also pretty overbought which does add more credence to the overbought argument.

In summary, I love the oil and other commodity plays. I would not purchase XOM currently due to the massive run-up this past month. I woul wait for a pull back to the uptrending lines or some sort of consolidation. Standard and Poor's is giving a target price of $66/share and Value Line Research is giving a target of $65/share for 2007.

Check out the other contributors this week to the Investment Roundtable to see their points of view as well:

Sixthworld Managment and Commentary
Jaloti
Technically Speaking

Best Regards,

The Soothsayer of Omaha

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