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Is ExxonMobil Stock a Buy?

Is ExxonMobil Stock a Buy?


ExxonMobil (NYSE:XOM) operates with a fairly distinguished group of peers, all of whom are giant international energy producers with diverse operations. Despite immense pressure to pivot to clean energy, Exxon remains close to its core oil and gas businesses. But investors need to think long term before making a final decision. Here’s why Exxon might be worth buying even as the world shifts toward renewable energy.

Exxon is an industry giant

Exxon has more than $400 billion market capitalization. This makes it bigger than Chevron, Shell, TotalEnergiesAnd P.A., its closest peers. In fact, the second largest integrated energy company on this list is Chevron, with a market capitalization of only around $285 billion. Simply put, Exxon is the 800-pound gorilla of the group.

Is ExxonMobil Stock a Buy?

XOM Market Cap Chart

What is remarkable is that the company’s European peers, Shell, TotalEnergies and BP, have all started to invest more in clean energy assets. It is a trend in the world, which strives to abandon carbon fuels. And yet, Exxon appears to be turning its attention to carbon, noting that it recently agreed to buy a U.S. oil and natural gas producer. Pioneering natural resources. The price of this transaction is $59.5 billion, although it is an all-stock transaction, so there is no money moving hands. Including debt, the transaction is valued at $64.5 billion.

Why would Exxon do this? The answer is actually quite simple: Major energy watchdog groups all agree that oil and natural gas will remain essential parts of the global energy landscape for decades to come. This will remain true even if investments in clean energy increase significantly. The reason this is not as jarring as it seems is that the world’s population continues to grow and global economies continue to move up the socioeconomic ladder, which generally leads to increased demand for energy . In other words, the pie is growing, so there is plenty of room for carbon fuels and clean energy.

In this scenario, there is no particular reason to dump Exxon stock. In fact, you might want to add a few stocks to your portfolio if you like owning industry giants with high yields and strong dividend histories. Exxon, for reference, has a yield of 3.7% (the S&P yield is only 1.4%) and has increased its dividend every year for over 40 years.

XOM ChartXOM Chart

XOM Chart

A few more reasons to love Exxon

In fairness, given the volatile nature of the energy sector, investors can’t really look at the dividend payout ratio to get an idea of ​​Exxon’s dividend safety. Indeed, Exxon’s earnings can and do swing wildly between black ink and red ink. What is more important is the commitment of the board, which four decades of increases suggest is strong, and the company’s preparation for tough times. On this front, Exxon’s debt-to-equity ratio is very modest, at around 0.1 times.

XOM chart of financial debt to equity (quarterly)XOM chart of financial debt to equity (quarterly)

XOM chart of financial debt to equity (quarterly)

This gives Exxon enormous room to take on debt during downturns in the oil industry so it can continue to support its business and dividends. When oil prices rebound again, as has happened in the past, the company pays down debt to prepare for the next period of weakness. If you can afford to buy oil while the world is crying out for clean energy, giant Exxon seems pretty well placed.

But what about the Pioneer deal? Yes, that means Exxon is doubling its consumption of carbon fuels. But take a step back and think about it in a different way. Exxon is so big that it could easily buy a $60 billion company. This company doesn’t have to be an oil company, it could just as easily be a clean energy company. Obviously, that’s not what management feels they need to do today, but at some point Exxon could pivot and solidify its true reputation for clean energy very quickly.

When the time is right, wait for Exxon to act

Exxon knows how to produce oil and natural gas at scale and efficiently. Sticking with this baseline capacity while these energy sources are still in high demand makes perfect business sense. Obviously, if you prefer to avoid carbon fuels, you’ll want to avoid Exxon. But don’t dismiss it out of hand if you’re looking for an energy stock, defining the sector as broadly as possible. Yes, Exxon is the giant of the oil industry today, but it could easily use its clout to pivot when the time comes. In other words, dividend investors who like to buy big industry players with strong dividend track records shouldn’t fear owning Exxon, even as the world transitions to clean energy.

Should you invest $1,000 in ExxonMobil right now?

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Ruben Gregg Brewer has positions in TotalEnergies Se. The Motley Fool holds positions at and recommends BP. The Motley Fool recommends Chevron and Pioneer Natural Resources. The Mad Motley has a disclosure policy.

Is ExxonMobil stock a buy? was originally published by The Motley Fool



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