Exxon Mobil (XOM) beat the odds. After being removed from the Dow Jones Industrial Average in August 2020 after 92 years, the stock used a comeback in oil prices in 2022 as the catalyst to prove its worth. But has XOM stock toppled from the throne of the energy industry? And have oil stocks already peaked? Or will Exxon Mobil’s next breakout be successful?
Exxon shares got a 2.9% lift on Tuesday after Bloomberg reported that global markets could face a 3.3 million barrels-per-day deficit, which would be the largest drop since 2007.
The Energy Information Administration (EIA) raised its Brent crude price forecast to an average of $93 a barrel in the fourth quarter, up from last month’s $88 forecast.
Energy companies made up just 2.5% of the S&P 500 in August 2020, when Exxon was removed from the Dow. Now energy makes up almost 5% of the S&P 500.
And Chevron (CVX) continues to battle Exxon Mobil for leadership of the energy industry, as do foreign oil giants such as Shell (SHEL) and BP (BP).
Exxon And Bitcoin? Cathie Wood Likes The Duo
Why would founder, CEO and CIO of ARK Invest, Cathie Wood, be interested in Exxon? She believes that bitcoin is going to solve some environmental problems. Wood noted in a podcast with Benzinga CEO Jason Raznik Exxon’s innovative endeavor to incorporate bitcoin mining machines into Exxon’s natural gas fields.
The project captures and uses natural gas to mint bitcoin instead of releasing it or flaring it, which is considered harmful to the environment. The synergistic arrangement is thought to benefit the environment while making a profit. Exxon Mobil is not on ARK Invest’s lists of holdings.
Crude Oil Prices Pull Up XOM Stock
Oil rallied on Sept. 5 after Saudi Arabia and Russia extended their voluntary production cuts of 1 million barrels per day and 300,000 barrels, respectively, until the end of 2023.
The average price of gas across the U.S. on Tuesday was $3.84 per gallon, and much lower than last summer’s high of $5 a gallon, according to AAA data.
West Texas Intermediate (WTI) oil prices recovered from the March 20 low and rose to around $89 a barrel on the OPEC news.
Natural gas prices soared after the Russia-Ukraine war erupted but have plunged and have yet to recover.
Exxon Stock: Fundamental Analysis
The company reported a mixed Q2 earnings and sales report on July 28. Second-quarter EPS fell 53% from the prior year to $1.94 per share, while sales dropped 28% to $82.9 billion. Lower natural gas realization and lower refining margins were the main factors contributing to the drop.
The oil giant has been one of one of America’s most profitable companies. However, its quarterly earnings 53% drop in the second quarter followed three quarters of slowing growth. At the same time, the quarterly sales drop in Q2 followed a 4% drop in the prior quarter, preceded by two quarters of diminishing growth.
Despite the shortfalls, Exxon achieved record quarterly production in Guyana and the Permian Basin area of southwest Texas and southeast New Mexico. Production in those areas grew a combined 20% in barrel of oil (boe) terms compared with the prior-year same quarter.
Free cash flow shrank to $5.03 billion in Q2 from $16.9 billion in last year’s quarter.
Analysts expect full-year 2023 EPS to drop to $9.18 from a historic $14.06 in 2022, with a further decline to $8.88 in 2024.
Exxon paid $30 billion in dividends and buybacks in 2022. The company said in late January it would repurchase up to $35 billion of shares through 2024. The company pays a 3.1% annualized dividend yield to investors.
XOM stock’s Composite Rating has greatly improved from a low 27 in August to 74. Its EPS Rating remains a dismal 32, and partly reflects a loss in 2020.
Mutual funds have reduced their stake in the oil stock, with 3,299 owning shares in June, down from 3,313 in March.
XOM Stock Technical Analysis
Exxon stock is in a cup base and nearing the buy point and 52-week high of 119.92. The cup base formed after yet another failed breakout from a prior base. Exxon shares regained the 200-day moving average on Aug. 29.
XOM’s relative strength line hit a low in mid-July before reversing upward, and has been on a jagged climb.
Exxon Mobil’s Relative Strength Rating has improved to 79, meaning it outperformed 79% of stocks in the IBD database in the last 12 months.
Exxon is in the Oil & Gas-Integrated group. The group moved up to 55th out of 197 IBD industry groups, and climbed from 73rd four weeks ago.
The Future Of Exxon
Exxon forecasts a 15% rise in energy needs by 2050 to supply the 2 billion additional people expected by then, and higher living standards, according to Exxon’s 2050 Global Outlook.
Exxon is considering branching out into the lithium business, Barron’s reported on Aug. 2. It was reported by Bloomberg that Exxon was in talks with battery makers and a few automakers to provide lithium used for electric vehicle batteries.
Reports earlier this year said Exxon bought land in Arkansas that may be used for lithium production. “So this, to us, feels like a potential win-win-win opportunity, a win using our capabilities, a win from an environmental impact standpoint, and a win in terms of supplying markets with a crucial component to electrification and EV,” said CEO Darren Woods in the July 28 earnings call.
Research firm Rystad Energy expects a rush in new offshore drilling projects over the next two years, with investments totaling $214 billion. This is the largest two-year investment in 10 years.
Guyana is a key spot for offshore drilling, with Exxon Mobil and Hess (HES) already partnering in a major project there.
Oil demand is shrinking in the long term as alternate energy sources take hold. Independent U.S. shale oil companies are scaling back their spending to keep their balance sheets on positive footing. That leaves the door open for oil majors to take market share.
Exxon has become a bigger shale player, increasing its holdings in the Permian Basin.
Exxon has pledged to have net-zero carbon emissions from operations by 2050. But the pledge didn’t include emissions from consumers using oil and other fossil fuels.
Exxon’s XOM Stock Follows Oil Prices
As with other oil stocks, Exxon will rise and fall with crude oil prices. So even when Exxon looks good based on fundamentals and technicals, crude oil prices may suddenly plunge, taking XOM stock down, too.
Investors could choose to buy an energy exchange traded fund as a way to play sector moves while avoiding stock-specific risk. Energy Select Sector SPDR Fund (XLE) and the iShares U.S. Energy ETF (IYE) are two energy-related ETFs. But those ETFs are still exposed to crude oil price swings.
Exxon and Chevron are major weights in XLE.
Is Exxon’s XOM Stock A Buy?
The bottom line: XOM is back above the 200-day line and its relative strength line is trending higher. An aggressive trader could have made an argument for a trendline breakout around 109, which would have been a bold and profitable move.
Shares are about 2% away from the next proper buy point at 119.92. Shares are setting up and advancing quickly, so keep it on your watchlist until the stock breaks out of its current base. Before that, XOM stock is not a buy.
Investors can check out IBD Stock Lists and other IBD content to find dozens of the best stocks.
Follow Kimberley Koenig for more stock market news on X, the platform formerly known as Twitter, @IBD_KKoenig.
YOU MAY ALSO LIKE:
Get Free IBD Newsletters: Market Prep | Tech Report | How To Invest
What Is CAN SLIM? If You Want To Find Winning Stocks, Better Know It
IBD Live: Learn And Analyze Growth Stocks With The Pros
MarketSmith’s Tools Can Help The Individual Investor
Looking For The Next Big Stock Market Winners? Start With These 3 Steps