ExxonMobil (XOM 3.96%) shares have pulled back about 10% or so from their post-pandemic peak. That puts them a little below $115 per share. So is it a good time to buy this energy giant, or should investors wait for a better entry point? Here's a look at each side of the story.
What does ExxonMobil do?
Before getting into whether Exxon is a buy below $115 per share, it pays to get a quick understanding of Exxon's business. From a big-picture perspective, it is one of the largest integrated energy companies on the planet, sporting a humongous $475 billion market capitalization. The key to its business approach is diversification.
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Exxon produces oil and natural gas from onshore and offshore developments. It transports these commodities through its midstream systems. And it processes oil and gas at its chemicals and refining plants.
It has facilities all over the world, so its business isn't just spread across the various segments of the energy industry -- it is also spread across the globe. All this helps to soften the inherent swings in the highly volatile energy sector.
All in, Exxon is a fairly solid choice for investors seeking out energy exposure. That would be just as true today as it would be when oil prices were at all-time highs or all-time lows. This is where the real issue comes in with regard to buying the stock right now.
NYSE: XOM
Key Data Points
Buy ExxonMobil today
Exxon is built from the ground up to survive the swings in energy prices. That not only includes its business model, but also its balance sheet.
The company's debt-to-equity ratio is among the lowest in its closest peer group. That gives management the leeway to take on debt during the hard times so it can keep funding its business and supporting the dividend. When energy prices recover, as they always have, leverage is reduced in preparation for the next downturn.
The proof that this approach works is found in the company's impressive 42-year streak of annual dividend increases. Clearly, if you're looking at the energy sector today, Exxon seems like it is ready to deal with whatever comes its way. That's important, given the increasing geopolitical tensions in the world. If oil prices get volatile, Exxon could be a relatively safe harbor in a stormy sea.
Don't buy ExxonMobil today
That said, if you aren't in the market for energy exposure right now, you might want to hold off on buying Exxon. The reason is also tied to the company's reliable dividend and strong business model. Look at the chart -- Exxon's yield goes up when its price goes down. That's the basic math of dividend yields, of course, but it points out something very important here.
XOM Dividend Yield data by YCharts
Exxon operates in an industry known for volatility. And it has managed to create a business robust to the swings in oil and natural gas. Given that it has a long history of increasing its dividend each year, no matter what the price of oil is doing, investors would probably get a better bargain if they waited for a full-on industry downturn.
The 3.6% yield isn't unattractive per se, but it is nowhere near the highest levels in the company's history. A yield that is, perhaps, closer to 5% (or higher) would be a much more attractive entry point. That will require buying while everyone else is selling, which can be hard to do. But if you make a plan now to buy Exxon during the next industry downturn, you are more likely to follow through on it later.
Buy Exxon now, or buy Exxon later
The truth is that Exxon is a very well-run energy company, and it would be a solid addition for investors seeking energy exposure at today's prices. But the stock has been cheaper, and the yield higher, in the past. With uncertainty rising in the energy patch, Exxon could be a rock in a stormy sea. Or, for those who don't mind waiting, it could also be a great stock to keep on the wish list just in case the energy market hits a downdraft.
