XOM
🛢️ Exxon Mobil possesses vast oil reserves providing high visibility for earnings growth through 2030, attracting investors seeking certainty amid market uncertainty.
💰 The stock trades at a significant discount (<12x 2025 P/E) compared to the S&P 500 (19x P/E) and offers an attractive dividend yield near 4%.
📈 Long-term oil market dynamics appear favorable, with rising demand projected and lagging supply investment potentially supporting higher prices, benefiting low-cost producers like Exxon.
@Artedeinvertir:
“Third company, Exxon Mobil, different sector, energy sector. If you remember, last week we talked about a graph of the best sectors that behaved well in the face of a possible economic recession, and one of them is the energy sector. So, ExxonMobil is probably the largest company in the world, the one with the largest oil reserves for decades, literally. It’s in the portfolio of six super investors within this Data Roma website and has withstood the crisis of recent months very well. We see that the price has dropped slightly, but it’s practically the same as at the beginning of the year. It drops a bit, but eh, it’s curious that oil has dropped much more, and the company has held up very well for several reasons that we will comment on next. This Morningstar analyst commented on a very interesting point. Here in the green part, he says eh that the shares seemed attractive for the current environment for Exxon because it trades for less than 12 times our estimate of earnings for 2025, despite the fact that oil has dropped. Keep in mind that the S&P 500 is currently trading at 19 times earnings, which represents a quite significant discount for a company that again offers an attractive dividend, a remuneration of almost 4%. And it also mentions here that Exxon is probably the best-positioned company to offer earnings growth until 2030. Due to these enormous oil reserves it has, the earnings visibility is very high. So, when there is economic or market uncertainty, there is high demand for this class of stocks that offer an absence of that uncertainty. This graph is very important to understand the oil issue. Currently, it may seem a bit difficult to understand, but this on the left are the break-even extraction costs, that is, to not lose money. Why is it difficult for Texas crude oil to fall below $60 per barrel and Brent below $65 or $70, which is how the company has made its forecasts? Many energy companies have dropped recently, but eh, it’s difficult for the price of oil to drop much more in the long term. Momentarily yes, I mean, even in 2016, I remember it dropped to $20, in COVID it was negative. In the Middle East, onshore means oil extracted on land, and offshore is what is extracted with floating platforms, okay? Deepwater too, okay? It’s more expensive. So, eh, the Middle East with Saudi Arabia, which is why it controls a large part of the oil, has a very low extraction cost, averaging $29. Here, for example, Russia, despite all the publicity they do and so on, has extraction costs of $54 per barrel. Down here is the production in millions of barrels per day. Normally, the world consumes 100 million barrels per day, and this increases, no matter how much you see the news and so on, by 2 or 3% per year. What happens when oil drops? Well, like now below $70 from this line we see here, well, the rest of the world, the onshore production, here there are all kinds of producers, well, we would have, for example, Mexico, eh Thailand, eh Malaysia, eh other less known regions, well, we see that they would already have to eliminate capacity because people who have wells what they do is say, ‘Hey, I have limited reserves, I’m not going to waste them selling them at a price where I lose money.’ Simply, the oil well is closed, and it’s not produced. So, what does that do? Demand is reduced, sorry, supply is reduced, and demand remains constant. What will the price do? Go up, okay? In the medium and long term. In the short term, oil can be very volatile, I repeat, but if we are investing long term, this is very important. The famous oil sands, which is not much volume extracted, maybe two or three million barrels per day, but in the world of oil, if there is an imbalance, a deficit of three or 5 million barrels per day, the price can skyrocket, just as it can also drop if there is overcapacity, but since there is all this negative publicity about the environment and so on, well, investment is not being made in new oil fields, and there is less and less oil supply, which means higher prices in the long term. And it’s always advisable to have a bit of the energy sector in the portfolio for, well, whatever might happen, if oil were to rise a lot, there would be high inflation, and that would be negative for most sectors we have in the portfolio, but at least we counteract with others. Even in a world where there isn’t a very high oil price, where it’s more or less stable at the current price or above, there are many cheap companies that eh give a good return. But we see here how oil, the moment it drops below those $60-70, there is a lot of capacity. If we look at the lower axis, there are almost 30, eh, 40 million barrels of oil that could leave the market, so the market balances very quickly. And the second graph, this is supply. What we saw before is the supply side, and now we have the demand side, which is very important within these markets. This line we see up here, this one, is the demand in a standard scenario of what, eh, these are estimates from JP Morgan, also the International Energy Agency, which is the most important body, more or less has the same forecasts until 2030 of growth of 1 or 2% in consumption, even until 2040 and 50 with the data we currently have, consumption growth is still projected. However, we can see here that starting from 2026 or 27, there is a drop in oil supply because investment is not being made, because governments have disincentivized this investment, and we see how it has been decreasing, which is quite positive for the interests of Exxon Mobil or other energy companies. Exxon Mobil has a very interesting growth plan, which is that between 2019 and 2024, it had growth almost at the level of technology companies. It was growing at an average of 13% its cash flow. It has a double-A rating for its debt, which is higher than the rating of some countries, and eh, thanks to the negativity there is, the company is at valuation lows, about six or seven times EBITDA. We see here that half of its expected growth is in the upstream business, which is oil extraction. Then there is the energy products business, which is simply refining. Then it has a part of manufacturing chemical products that can be used in textiles, lubricants, well, many, many applications there are, okay? But a large part of the improvement it will have is due to those enormous reserves it will exploit in the future. And eh, it also has an advantage, which is that the investment it is making, that it has made in recent years, will decrease considerably. Between 2019 and 24 and 25, it has invested heavily to do the exploration and bring these new oil fields into production. And by 2030, it will no longer have to invest because it has already made the investment, now ExxonMobil is in the era of, let’s say, reaping benefits, and eh, that will mean higher profits and higher cash flows for shareholders. The company by 2030, especially profits, which is what will matter for the stock price, expects them to go from 25 billion to eh almost the range of 50 billion, meaning it expects to almost double profits and grow on average these years by 10%. In a sector protected against inflation, which you know always also when there are geopolitical issues, except for the tariff issue, the price of oil tends to rise, and well, operating cash flow will also rise from 50 billion to 80, growth of 60 or 70% is expected, and from here will come the dividends, buybacks for the shareholder. And ExxonMobil we can evaluate in another way, we can evaluate it by the free cash flow yield it offers the shareholder. It had been a while since it was at this valuation. Currently, it offers a shareholder yield of 7%, but normally the market was satisfied with a yield between 3 or 5%. We can see here in 2022 people demanded a very high yield, almost 13%, because the price of oil was very high. People saw that it was not sustainable, and rightly so because it was $100 per barrel, it was too high. And eh, now it’s curious because the price of oil is at lows, in fact, it’s at similar levels or even lower than 2018, and yet, the market offers the shares with a much higher yield.”
Watch the exact part of the video where @Artedeinvertir talks about Exxon Mobil here:
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