It is easy to find an oil and natural gas producer that will benefit from rising commodity prices. In fact, ExxonMobil (XOM 0.35%) doesn't stand out from the pack when energy prices are heading higher. And most investors should still consider it, because oil prices will eventually fall, as they always have before. And when that happens, Exxon will stand out. Here's why.
Energy prices are always volatile
The geopolitical conflict in the Middle East is a headline-grabbing event. It is having a dramatic impact on energy markets, pushing oil and natural gas prices higher. But such market dislocations are fairly common in the energy sector. Which is why buying any oil stock just because oil prices are rising isn't a great idea.
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If you buy an oil stock, you have to think about what happens when oil prices eventually fall. Exxon's business is designed to survive through the full energy cycle. The dividend has been increased annually for 43 consecutive years, which is proof of both how successful the company is and how reliable it is as a dividend stock despite operating in a highly volatile industry.
Exxon's financial foundation is key
The most obvious thing to focus on with Exxon is its integrated business model. Having exposure to the entire energy value chain helps smooth out the peaks and valleys inherent to the industry, since the different segments operate differently throughout the energy cycle. However, there's something even more notable with Exxon.
Exxon has the strongest balance sheet in its peer group. Its debt-to-equity ratio is roughly 0.19x. That is low for any business, let alone an energy stock. And it gives Exxon immense flexibility when oil prices fall. Simply put, it can take on debt to support its business and its dividend while it waits for energy prices to recover.
NYSE: XOM
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That changes the game materially for the company and its shareholders, turning industry downturns into potential investment opportunities. While other companies worry about survival, Exxon can lean in and invest more, perhaps even buying energy assets or entire companies when they are cheap during an industry downturn.
The best reason to buy Exxon
Long-term investors don't buy Exxon because of rising oil prices. They buy Exxon because it has proven it can easily survive falling energy prices. And if history is any guide, energy prices won't stay this high forever. If you plan on buying an oil stock, think long-term and start your search with Exxon.
