ExxonMobil Corporation (NYSE:XOM) has badly lagged its European integrated energy peers so far this year. There are good reasons for the near-term underperformance, of course, but the company's laggard showing has created a potential opportunity for investors looking to buy stocks on the cheap. Add in Exxon's long-term growth plans, and this oil and natural gas giant looks like a compelling buy right now.

How bad has this year been?

Exxon's stock is down around 1% so far in 2018. European-based Royal Dutch Shell, Total, BP, and Eni are up between 8% and 16%. Investors are clearly voting with their pocketbooks in 2018, and Exxon isn't winning this election.

A man his head on a table and a graph doing down behind him.

It's been tough to own Exxon lately. Image source: Getty Images.

There are good reasons for this. For example, Exxon had for many years been at the head of the pack with regard to return on capital employed, or ROCE. This metric essentially looks at how well a company is investing its shareholders' capital. But ROCE at Eni, BP, and Shell is now higher than at Exxon. In other words, Exxon has gone from leading the pack to just middle of the pack. That's not horrible, but it certainly isn't good.

Exxon has also been struggling a little with production. That metric has fallen in each of the last two years, down about 2.7% over the span. That's not a huge drop, to be sure, but production is going in the wrong direction. The downtrend, meanwhile, has continued in 2018, with first-quarter production off year over year by around 3%, with The Motley Fool's Tyler Crowe rightly suggesting that Exxon's results are "testing" investors.   

A set-up

The recent string of weak production results and investors' justifiable concerns about Exxon's ROCE performance have led the stock to lag behind better-performing peers. At this point, though, the oil giant's price to tangible book value is lower than it's been since the late 1980s. In other words, valuation-wise, Exxon hasn't been this cheap in around 30 years. Meanwhile, its dividend yield, at roughly 4%, hasn't been as high as it is today since the mid-1990s.

XOM Price to Tangible Book Value Chart

XOM Price to Tangible Book Value data by YCharts.

Exxon may not be performing particularly well today, but it does look like a relative bargain. However, that's only true if it can turn its recent performance around. In terms of the balance sheet, there's little to worry about. Even though, like most oil majors, Exxon relied on its balance sheet to make it through the deep oil downturn that started in mid-2014, long-term debt is still modest at roughly 10% of the capital structure. The company has plenty of financial leeway to do just about anything it wants.   

That's a good thing, because Exxon has big plans for the future. For example, it intends to ramp up its capital spending by as much as 25% over 2017 levels by 2023. This is in support of major oil and natural gas drilling projects around the world, as well as spending on the chemicals and refining downstream side of its business. But the big takeaway is that Exxon is well aware of the need to get production growing again and has clear plans to do something about it. An early indication of its push to improve production can be found in its reserves, which advanced a touch over 6% in 2017. 

Given enough time, it looks like Exxon will get back to production growth again. However, that's only half the story. Exxon also needs to execute better than it has been in recent years if it wants to catch up to peers. It's currently planning on improving its return on capital employed from around 7% or so into the mid-teens. This improvement is slated to come from a mixture of approaches. One key feature is a plan to take greater control of the projects in which it invests, allowing Exxon to make better use of its skill at bringing large projects to fruition. But improving ROCE will also be driven by moving up the value chain on the downstream side by investing in assets so it can produce higher-margin products like specialty chemicals. Once again, though, the big takeaway is that Exxon knows there's an issue and has plans to address it.   

Are you willing to wait?

The end of the story is that Exxon isn't performing as well as peers today, and its stock performance reflects that. But the giant integrated oil company is working to fix the problem. The catch is that the fix to the company's production and ROCE issues isn't a quick one. Still, with the company's yield at such a relatively high level and its price to tangible book value so low, long-term investors willing to wait for the current investment plans to play out should see the company's relatively low valuation today as a buying opportunity.