$74.99
-0.80 (-1.06%)
ExxonMobil Corp (XOM)
CAPS Rating:
The Company's principal business is energy, involving the worldwide exploration, production, transportation and sale of crude oil and natural gas and the manufacture, transportation and sale of petroleum products.
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I don't think Exxon the company really needs a lot of talking up. We all know what they do, how well they are run and the branding they have. But when most people think of Exxon the stock they think of a slow, plodding stock that will go up little by little every year. I have a different outlook.
I will only purchase a stock if I think it is trading at a significant discount to it's true worth, even for a company as historically great as Exxon. I use 3 fundamental keys to determine if a stock is trading at a discount.
The first is the balance sheet, specifically cash to debt. Exxon has over 31 billion in cash and just over 7 billion in debt. Almost a 4.5 to 1 ratio of cash to debt, very nice.
The second key is FCF. I use FCF in 2 ratios, EV/FCF and P/FCF. I prefer P/FCF over P/E as FCF is harder to manipulate and is also what should be used to increase shareholder value, assuming management takes steps to increase shareholder value. Exxon has an EV/FCF of 9.13 and a P/FCF of 9.83, both signs that the stock may be undervalued. Those ratios are not enough alone, however, it is also important to me to see what management does with FCF. I like companies that at least buyback shares, and if they also pay dividends that is a bonus. Exxon, not surprisingly, does both, so management definitely knows how to increase shareholder value.
The final and most important key is to determine how much I think the stock is worth and to then determine if it is a good buy right now. I use a conservative DCF calculation for this and for Exxon I have come up with a value of 117.63 a share. I also accept the fact that this value will probably be wrong. So to give myself a margin of error, or safety, I will only buy when the stock is trading for 40% or more under this price. In this case that means my buy price is anything under 70.58. And what is Exxon trading at as of this moment? 69.11, a good buy.
We share a similar approach to valuing investments. Good post.
all the indicators you use point to a solid choice. I second your choice for mid short term. I would not keep for long term however because I have a feeling in my gut the Exxon will have it's major obsticles to overcome soon. Gut vs Choices made with hard data. You win my friend.... For now LOL
Very insightful -- albeit, a lot over my head! -- but very good. You convinced me (I bought some shares today!).
XOM and some of the other integrated oil co's might as well be crude oil ETF's. except for some heehawing around at very high and very low oil prices, XOM looks like OIL that pays dividends. i sold it last year when oil was 140.
bought XOM at just under 70, once i was sure that oil was really going to go up. now i am milking calls that will give me a decent return if exercized. if oil ever gets to 100 again, i will probably sell.