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Another day of gains for U.S. stocks, with the S&P 500 (SNPINDEX: ^GSPC ) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI ) up 0.4% and 0.2%. That puts the S&P 500 within a hair's breadth of erasing last week's losses.
The VIX (VOLATILITYINDICES: ^VIX ) , Wall Street's fear gauge, was virtually unchanged today, gaining just a hundredth of a point to close at 13.62. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)
Drilling for value
Dow component -- and world's most valuable company -- ExxonMobil (NYSE: XOM ) reported its first-quarter results this morning. I'm not even going to mention whether the company missed, met, or beat expectations, as my sole perspective is that of a a long-term, fundamentally driven investor (the same approach I encourage you to adopt, if you want to have even a chance of beating the market).
Although quarterly profits rose relative to the year-ago period, oil and natural gas production fell 3.5% year on year for the seventh consecutive quarter, to 4.4 million barrels of oil equivalent per day. In fact, total production is virtually unchanged since 2002, as the output from older fields slows and the competition for large new oil and gas fields has become merciless. The latter factor is partially a result of an explosion in energy demand from emerging economies, particularly China. Nevertheless, the company said production will ultimately increase by as much as 4% annually, beginning in 2014 through 2017, as more than two dozen major projects come online.
With growth harder to come by, investors may be disappointed to learn that ExxonMobil will reduce its share repurchases by 20% to $4 billion in the coming quarter. In the first quarter, the company bought back a whopping $5.6 billion worth of its shares. ExxonMobil had the the largest share-buyback program (in terms of aggregate purchases, not just authorizations), of any company in the S&P 500, whether it be in the most recent quarter or over the trailing 12 months (although Apple is set to overtake it).
Even at a run rate of $16 billion per year, however, buybacks would remain significant for a firm with an market capitalization of roughly $380 billion; more importantly, those purchases are likely to be adding to, rather than destroying, shareholder wealth at shares' current valuation. ExxonMobil faces a challenging environment, yes, but there is no evidence it is anything but laser-focused on creating shareholder value, and at just 11 times the next 12 months' earnings-per-share estimate, investors remain well positioned to reap the fruits of those efforts.
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