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Why Couldn't ExxonMobil Strike a Gusher in 2012?

Now that 2012's nearly in the rearview mirror, investors are beginning to sift through the market for the best stocks of the upcoming year. The future is plagued with uncertainty, but that has always been the case, and it has never stopped us from seeking out long-term values. One way to find those values is to look for companies with a long history of success. The Dow Jones Industrial Average (DJINDICES: ^DJI  ) contains many such companies, but some are better investments than others.

Today we'll be taking a look at ExxonMobil (NYSE: XOM  ) -- a Dow component first added in 1928 as Standard Oil of New Jersey -- to see if its past-year performance holds some clues for 2013.

First-half recap
ExxonMobil has tracked the Dow all year in 2012, as you can see here:

XOM Total Return Price Chart

XOM Total Return Price data by YCharts.

The correlation between ExxonMobil and the Dow extends back for several years. It's not until we look at 10-year comparative performances that the oil giant really pulls away. In five years, ExxonMobil has gained 10%, while the Dow is essentially flat. Here are a few financial snapshots of its recent performance to better understand why this correlation might be so tight:

Market Cap

$408.4 billion

P/E, Forward P/E

9.4, 10.5

Price to Free Cash Flow


TTM Revenue Growth


TTM Net Income Growth


TTM Free-Cash-Flow Growth


MRQ Revenue

$488.7 billion

MRQ Net Income/Loss

$9.6 billion

MRQ Free Cash Flow

$4.8 billion

2013 Projected Growth Rate


Sources: Morningstar; Yahoo! Finance; ExxonMobil 10-Q; YCharts. TTM = trailing 12 months. MRQ = most recent quarterly.

What the numbers don't tell you
Given these numbers, it's almost surprising that ExxonMobil has tracked the Dow so closely. A 25% decline in annual free cash flow is worth paying closer attention to, as it may indicate either a concerted exploration push or difficulties in maintaining momentum. Analysts are skeptical that the middling growth posted this year will be replicated next year, as the company's forward growth rate doesn't even keep pace with inflation.

However, as Fool energy guru David Lee Smith points out, analyst models will always have a difficult time accounting for the many variables in an oil supermajor's earnings. Will oil prices increase? Will the company strike a gusher or be tapped out? Will an environmental disaster cause unexpected losses? These are just a few of the problems facing energy analysts. However, we can look at what's available to get a clearer picture of the future. ExxonMobil's oil-equivalent production was down slightly in the third quarter, and its capital expenditures were 9% lower, so that reduced free-cash-flow level can't be blamed on major new infrastructure build-outs.

As the world's largest publicly traded oil firm, one of ExxonMobil's last sources for growth comes from acquiring smaller oil players. David Lee Smith has the scoop on possible buyouts, suggesting Anadarko Petroleum (NYSE: APC  ) , Apache (NYSE: APA  ) , and EOG Resources (NYSE: EOG  ) as logical targets of the right size to be immediately accretive.

An acquisition would not only address the problem of production declines, but also offset the risks ExxonMobil and partner Royal Dutch Shell (NYSE: RDS-A  ) (NYSE: RDS-B  ) have encountered in Iraq, which is hardly a safe haven despite nearly a decade of American rebuilding efforts following Saddam Hussein's ouster. ExxonMobil's Iraqi developments are also set to come under closer scrutiny if a specific provision of Dodd-Frank becomes active, which gives the company (and its major global peers, which include Chevron (NYSE: CVX  ) and BP (NYSE: BP  ) as well as Shell) more reason to fight the provision or otherwise hasten its exit. ExxonMobil and its large peers have, through an industry lobbying group, complained that the provision would put them at a comparative disadvantage against oil companies that don't have to report anything in the United States.

ExxonMobil also happens to be the largest natural-gas producer in the U.S., ahead of industry figurehead (and sometime punching bag) Chesapeake Energy (NYSE: CHK  ) . Its diversity has helped stave off the financial woes felt by many nat-gas-focused companies that have had to deal with prices so low that they've become nearly crippling to some. A rising tide of anti-fracking sentiment hasn't done natural gas any favors, either. Although ExxonMobil is still more of an oil play than a nat-gas play, its future prospects will certainly benefit from renewed strength in this energy sector.

There are a lot of moving parts to ExxonMobil, and this overview only touches on some. Next year could see this oil titan finally break above the Dow, as it once did years ago. Much will depend (as it always does) on factors out of ExxonMobil's control -- namely, the prices of oil and natural gas. In the meantime, ExxonMobil's sheer size and successful history as a producer of essential energy products makes it, at the very least, a good defensive play in an uncertain world.

ExxonMobil's far from the only company that would benefit from higher nat-gas prices. One big opportunity lies in an unexpected industry: utilities. You'll find the inside scoop on one utility the Fool has named "The One Energy Stock You Must Own Before 2014" in our exclusive free report. There's no obligation beyond satisfying your own curiosity, so click here to learn more now.

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