Why ExxonMobil Led the Dow Today

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) jumped as much as 1.11% today before settling in with an 0.84% gain with 30 minutes left in the trading day.

Driving the Dow's gains today was a better-than-expected measure of manufacturing production in the U.S. The Federal Reserve said factory production rose 0.6% in November and industrial production was up 1.1%, both exceeding expectations. Manufacturing is a core component to economic growth, and continued growth will drive both unemployment lower and GDP higher.

ExxonMobil charges higher
One of the best stocks on the Dow today was ExxonMobil (NYSE: XOM  ) , which rose 2.2%. Goldman Sachs upgraded the stock to a buy rating today, asserting shares will be worth $109 in a year.  

When looking at today's pop, remember that Wall Street analysts not only have little incentive to get their calls right, they also have a terrible history of underperforming the market. So, let's take a look at ExxonMobil's trends to see where the company is going operationally to see if Goldman Sachs may be right.

Over the past five years, ExxonMobil's revenue has fallen 7% and net income is down 24.4%. The primary reasons are falling consumption of oil in developed countries and a sharp rise in the cost of producing oil, two trends that aren't slowing anytime soon.

XOM Revenue (TTM) Chart

XOM Revenue (TTM) data by YCharts.

The third quarter was the first time in two-and-a-half years that ExxonMobil was able to increase production of oil and gas. But as you can see above, that did not result in additional profit. Goldman Sachs is predicting that this production growth will continue and will help grow revenue for the company.

Production may grow, but keep in mind that costs are rising because producing oil is getting more expensive and that there's nothing suggesting that oil prices will rise significantly in the near future. Those two trends mean that margins will continue to be squeezed in the long term. I'm not saying ExxonMobil's stock can't or won't go up next year, just that operationally there are a lot of risks, some of which we're already seeing play out.

Don't follow an analyst's call blindly. And make sure to consider the contrarian side of the argument, some of which I've presented above.

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