What's Wrong With ExxonMobil?

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Hurrah! U.S. stocks managed to eke out a gain day today, with the S&P 500 (SNPINDEX: ^GSPC  ) up 0.38%. However, the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) wasn't as lucky, losing 0.05%.

One stock that didn't help the Dow today was ExxonMobil (NYSE: XOM  ) , which was down 0.10%. It seems losing days have become a bit of a habit for this stock recently, if we are to believe the following tweet from the folks at Bespoke Investment Group (@bespokeinvest):

That seems like an unlikely result, if chance were the only variable. Indeed, if we assume that the odds of ExxonMobil's stock being up or down on any given day is 50:50 and that each trading day represents an independent trial, then the probability of recording 19 losing days out of 20 is .0019% (or stated differently, approximately 2 in 100,000.)

That result strongly suggests that ExxonMobil's daily returns are not independent of one another right now and that there is some sort of momentum effect at work -- negative momentum, in this case.

Which raises the question: Is there anything going on with ExxonMobil? I'm not talking here about the stock directly -- barring an obvious catalyst, trying to divine the reason behind short-term price movements is a fool's errand. Rather, the stock's losing streak is the opportunity to ask a more fundamental question: Is ExxonMobil's franchise and hence its business value deteriorating?

If we go by the second-quarter "action" of investors who actually have a view on the stock's intrinsic value, the answer to that question appears to be no. Second-quarter portfolio transactions by the 53 value-oriented managers/ funds tracked by gurufocus.com reveal four (three of which are affiliated with Yacktman funds) increased their positions during that period, with four reducing them. In each case, the relative size of the purchases and sales was essentially insignificant; in particular, all sales represented less than half a percent of the position at the end of the first quarter.

However, as the Financial Times recently remarked [subscription required]:

[Oil] majors seem trapped in a downward cycle of spending more and more to find and produce less and less oil. Increasingly, investors are ditching them for smaller, more nimble rivals, especially those in the vanguard of North American shale.

That would certainly help to explain the shares' massive underperformance this year:

XOM Chart

XOM data by YCharts.

Either way, as ExxonMobil (along with the other majors) shifts focus from trying to maximize production volumes to managing for value, investors who can wait out this period of underperformance can expect to be reap a reasonable return in exchange for their patience.

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Read/Post Comments (3) | Recommend This Article (8)

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  • Report this Comment On August 20, 2013, at 9:04 PM, speculawyer wrote:

    Oh it is not complicated. The cost of finding and extracting oil is very expensive these days. And the amount that people can afford to pay for it is limited. VMTs (Vehicle Miles Travelled) are down over the past 3 years. The oil biz is not as easy as it once was. I'm going electric because I've had it with gasoline.

  • Report this Comment On August 20, 2013, at 9:07 PM, speculawyer wrote:

    Oh . . . another problem is that people are recognizing that they are playing games with their reserves. Instead of barrels of oil they now use barrels of oil equivalent (BoE). Thus, they are using gas reserves to make their reserves look bigger . . . but the problem is that natural gas isn't worth much. So they are faking their reserves a bit.

  • Report this Comment On August 21, 2013, at 4:08 PM, InvestLetters wrote:

    I have been posting at various times since this one (http://investletters.com/blog/dont-buy-exxon-mobil/) in June of 2008 that ExxonMobil was a terrible stock to own - unless you are thrilled by 2.x% dividend on your money.

    Interestingly, 5 years later, XOM is almost exactly the same price, maybe a few dimes lower.

    They buy stock back, they increase the dividend, but capital gains are not recent memory.

    If it weren't for all those investment newsletters recommending it of late I would have considered puts when it was making a new high recently - but, as usual, that new high didn't last long.

    Regards,

    Roger

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