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Jun
25
Jonathan Yates
Is It Too Early to Bottom Fish with Exxon Mobil?
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While it is impossible to time the market, “being greedy when others are fearful” as Warren Buffett puts it, can certainly be a profitable strategy.  He demonstrated that with buys of Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC), and General Electric (NYSE: GE) when all had been ravaged by The Great Recession.  The huge profits he has made from those buys has added not only to his legend but also to Buffett’s personal wealth of over $50 billion.

It is not too early for stock pickers to start scouting for the buys if the current downtrend continues to profit from “being greedy when others are fearful.”

As detailed in other articles on this site, the Federal Reserve pulling back Quantitative Easing III, its bond buying program to recapitalize the global financial system, will not be pretty.  Just remarks from Federal Reserve Chairman Ben Bernanke last week has sent the Dow Jones Industrial Average tumbling.  Should stocks continue to fall, Exxon Mobil (NYSE: XOM) is a company to consider.

Exxon Mobil is down more than 3% for the last week of market action.  But it is only about 5% from its 52-week high.  As Exxon Mobil trades in a tight band with a beta of 0.51, it is less than 14% above its year low of $77.74.

There is much to like about Exxon Mobil, the world’s biggest oil company.  Due to the recent decline in the share price, the dividend is around 2.85%.  As the average dividend yield for a member of the Standard & Poor’s 500 Index is just over 2%, that is a nice premium received for owning a great company.  Exxon Mobil is also a “Dividend Aristocrat.”  To earn that status, a company must raise its dividend for 25 consecutive years.

What also shows the superiority of Exxon Mobil is its return on equity.  That metric is a favor of Warren Buffett’s.  A company’s return on equity is derived from the net income returned as a percentage of shareholder equity.  For the oil industry, it is about 19%.  Exxon Mobil’s return on equity is close to 29%.

As the chart below shows, Exxon Mobil has been falling after a strong run.  It has given up almost all of the gains from the past year, though.  Exxon Mobil is a stock to follow for the long term investor.



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