Why Understanding Technical Analysis When Trading is important Should You Buy Exxon (XOM) Stock?

Crude oil and natural gas condensates are major commodities associated with ExxonMobil’s (XOM) and its revenue and profits rely heavily on crude oil as the main trading product. Thus, XOM stock swing in relative to existing oil prices in the world market.

Many investors opt for XOM stock because of its track records since its existence. However, there have been instances that its stock value decreases leading to losses here and there. In this article explanation on the current swing of the oil prices making it difficult to predict its future trends, something that has stranded investors on the next course of actions.

According to XOM stock chart as per the Jan. 31 reported a 66% fall in quarterly earnings to 40 cents per share revenue drops to $67.17 billion.  Both were below the Wall Street expectations. The oil production remained constant at 4.02 million oil barrels per day, despite a 4% increase in liquid offsets there were a corresponding 5% decreases in gas while Permian Basin shale production escalated to 54%.

However, in early March during investors meeting, Exxon announced that the Permian Basin oil production will be slow down by 10%for the next two years due to falling in oil prices, but revealed its intentions to triple the production at the prolific basin by 2024. However, this was said before Russia sparked a price war and the oil prices in Saudi Arabia plunged in early March. 

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Tough Times for Oil Ahead

Unusually this year the oil stock prices have drastically dropped, if we look into previous years, this trend seems to be persistent, the sell-off rose in the last few weeks probably due to rising global economic threat (covid-19) and the recent days Saudi/Russian disputes. There seems to be a dirty game being played by the world’s most prolific oil producers to make the dynamic supply/demand trend to be unfavourable.

As per the expert’s opinion, the recent pricing pressure adversely affects dividends in the energy space. Already, this has been witnessed when Occidental (OXY) one of the giant oil company announces the slashing of its dividend from  $0.79 to $0.11 per share. The share value has dropped by 83% for the past 52weeks and it’s clear to see the pain investors have to endure to move forward. Unless things take a positive change, it will be tough even for ExxonMobil to promise its investors a consolidated price in the oil space.

Lower for Longer

Concerning the recent trends, it’s an indication of grumbling of the oil industry, thus, all kind of prediction can be deduced the future of the company. However, I see it from a different perspective and thinks thing will eventually stabilize, here are the key reasons why I’m of different opinion about ExxonMobil stocks regardless of the current situation at hand.  

Firstly, the oil and oil products are on high demand across the world, take an example of ICE engines cars, truck, boats, planes and other industrial machinery that need oil to propel, as long as the world demand for oil remains constant. The fabric of modern society is highly dependent on the petrochemical energy and the innovation of other sources are still limited to the server in the world. Thus, ExxonMobil is likely to thrive for many decades and so its stock.

Despite many efforts to get rid of fossil fuel, this will not happen overnight rather a gradual transition that can take more than a century. According to the IEA report charts on energy demand for the coming decades. Fossil fuel will be on higher demand in future than it is today for a sustainable plan to be realized.  Thus, a dominating company such as ExxonMobil cannot be overlooked as we move to the future. The fluctuation in the stock market today can be viewed as a temporary and soon XOM stock would be a buy.

The IEA report shows below shows that there will be an increase in demand for various energy including electricity, natural gas, wind, solar, and hydro sustainable development.  From the data demand for oil is the coming decades is higher a sector that is still fertile for to invest. The price decline resulting from price wars and pandemic threat Covid-19 “coronavirus” will soon recover as these issues calm down.

Source: IEA World Energy Outlook 2019

Valuation

Energy space investment nowadays requires high intestinal fortitude. This is because of multiple variables such as price-to-earnings ratios, thus understanding technical analysis is important for one’s success in this game. For, instance giant companies including JP Morgan and Kosmos Energy Ltd have suspended its dividend due to a shift in oil prices. At the moment whether the affected oil enterprises such as Exxon will end up to be more expensive or falling further than their share prices.    

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Source: F.A.S.T. Graphs

It may seem odd for XOM to trade at average share especially when P/E ratio is at 50% from recent stats, however, I believe this is because XOM reported a revenue drop by 53% in 2019. The current year analyst already indicates 2020 as a negative year. As the prediction of XOM’s EPS was expected to fall by 1% before the price of oil tumbled early March.

Upside Potential, Why XOM is no longer a Buy?

Analysts are currently speculating a strong EPS growth comes 2012, However, this is questionable since there is so much uncertainty that may occur before in predicted 20 months. The oil market has and will continue to be volatile as long along the price determinant are attached to many variables.  If XOM is estimated to produce about $3.50 by 2021, and can believe these cheap analytics, then buying share price at $38 is worth giving a try.

However, if you are such a pessimistic, who priorities a reliable dividend and safe yields, then you need to do more scrutiny regarding the XOM’s earning and revenue that relates to fundamentals variables and dividend growth before putting capital at risk. As per the past record, you will agree with me that this is no longer a buy and forget company. Just like other companies in the industry XOM faces many challenges making it hard to predict its future dividend prosperity unless the technical analysis is carried out.

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