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Best Blue Chip: ExxonMobil

In the spirit of the Winter Olympics, which start Friday in Torino, Italy, The Motley Fool is pitting companies against one another. The writers will outline why their company is the best, and our very own panel of judges will decide the winner after a period of deliberation. Stay tuned for more!

ExxonMobil (NYSE: XOM  ) has an excellent investment profile: It leads its industry in providing a must-have product (unlike a Coke or cigarette). Better yet, it has a solid-gold balance sheet and a low valuation.

A giant among giants
Though bigger isn't always better, ExxonMobil is a top performer in its own industry. While the average company in the major integrated oil and gas industry has a 12.5% trailing annual operating margin, ExxonMobil tips the scale at a hefty 17.5%. For comparison, BP (NYSE: BP  ) and Chevron (NYSE: CVX  ) have operating margins of 9.2% and 11.5%, respectively.

That superiority bleeds through on the balance sheet, where ExxonMobil has a fairly attractive cash position to its merit. You'd be hard-pressed to find any major oil producer as conservatively leveraged as this one. Without a doubt, ExxonMobil is the outstanding performer within its industry.

Leading the competition
Investors don't just want to buy the best -- they want to pay a low price for it, too. ExxonMobil shines here, with the lowest P/E in its industry. Of course, that's a bit biased by the the company's recent record profits on the back of similarly high oil prices (a trend that I'll discuss below). In the spirit of fairness, Altria (NYSE: MO  ) and Johnson & Johnson (NYSE: JNJ  ) also look tempting based on their current earnings multiples and growth expectations. But in my opinion, the other stocks in competition here are overpriced relative to their growth prospects.

Before writing off Exxon's 6.6% expected annual growth, think back five years. Was anyone predicting $60 oil -- or even $40 oil? Of the five companies we're measuring up, only ExxonMobil packs a commodity wild card. If worldwide oil output has peaked, then ExxonMobil's long-term earnings outlook is much better than 6.6% growth. Indeed, ExxonMobil has beaten analysts' estimates over the last three years.

In contrast, Altria's brisk cigarette sales in foreign markets may eventually be curbed by the same taxes and smoking restrictions now common in the United States. This observer also hopes that health care education will someday rein in Altria's tobacco sales.

Johnson & Johnson has a great balance sheet with a heavily fortified cash position. But pharmaceuticals -- a high-risk business that hinges on FDA reviews and patent expirations -- compose almost half of its sales and more than half of its profits. Operationally, J&J is hardly setting the world on fire. In the fourth quarter, pharmaceutical revenue decreased 6.1%, and U.S. pharma sales fell a whopping 10.2%. Overall, the company reported a 1.1% decline in sales but a 9.1% increase in income (after excluding charges). The analysts may expect great things, but for now, the results are a bit hard to swallow.

Handing out the medals
In the latest quarter, ExxonMobil reported a 23% increase in net income (excluding special items) and a 27% rise on a fully diluted per-share basis. That's great performance, and it comes with a cash-laden balance sheet. Add in the potential that analysts will once again underestimate energy prices, and you'll find good upside potential here. ExxonMobil is the best of this bunch -- and its products fuel the industrialized world.

More on the battle of the blue chips:

Fool contributorW.D. Crotty own shares in Chevron.Clickhereto see The Motley Fool's disclosure policy.

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