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Pick Up Big Oil While it is Still Cheap
I have always been an unfashionable person. I was still wearing my bell bottoms and mutton chop sideburns well into the eighties, and even today people laugh at my yellow power ties which are 30 years old. It’s all part of my living antique image.
To be consistent, I am remaining unpopular in my fascination with oil companies, which are now trading at multi generational lows, thanks to the errant ways of BP.
ExxonMobil (XOM) has stoked my interest further, announcing a blowout of a different sort today, with Q2 revenues soaring 24% YOY to $92.4 billion. Higher crude realizations, a new LNG project coming online in Qatar, and sharply recovering refining margins all contributed, enabling EPS to jump from $1.46 to $1.60.
I have been followed this company decades before the 1999 merger with Mobile Oil, back when it was still the Standard Oil Company of New Jersey, have met various members of the founding Rockefeller family over the years, and helped guide their foundation into some early hedge fund investments. David Rockefeller, John D.’s grandson and chairman of the Chase Manhattan Bank, once told me that I was one of 70,000 names in his rolodex.
This is the world’s most conservative company, and there is a reason why the Gulf blowout happened to BP and not to them. I think rising oil prices (USO) are going to be a major investment theme from here on, and that we will revisit $150/barrel oil sooner than you think.
I wrote about Occidental Petroleum (OXY) earlier (click here for the piece). My investment in an all electric, carbon free Nissan Leaf also anticipates this move (click here for that piece).
I’m putting XOM on my “buy on meltdowns” list.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “Hedge Fund Radio Archives” in the upper right corner of my home page.
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so tell me mr. rockefeller friend you... has david confided in you and told you "things" a la aaron russo?
"Mobile" Oil indeed.
Maybe this guy is a little long in the tooth to be trading?
Definitely, buy it, but only AFTER a meltdown.
Yes, the P/E is very low, but only if you believe theat the P/Es of other stocks are fair. What if the rest of the market is grossly "overvalued?"
XOM is one of a few stocks that's for whatever reason is not "in play" by HFTs, hedgies, and the "fast monkey" crowd. (Too big to move the needle? AAPL is also too big, but AAPL is "moving.")
Anyway, if the market going into another intermediate bear cycle, where stocks will lose 30% - XOM may lsoe only 15%. Beats the market, good enough to collect a salary from your employer, but not good enough if you're trading your own account.
Nobody made a dime in XOM, unless you scalped it, resistance is 60-60.70, chart.
http://www.stockta.com/cgi-bin/analysis.pl?symb=XOM&num1=1&cobrand=&mode...
As Mish pointed out, trend is flat/down for oil, no matter how much the Iran threat, nobody is buying it.
http://globaleconomicanalysis.blogspot.com/2010/08/iran-threatens-israel...
Exxon Mobil is the least leveraged of the oils too. They have as much cash as debt typically on hand. So when yields shrunk people chased the higher leveraged companies. Exxon has been spending on fields and research mainly in africa at the moment. With their purchase of XTO they are roughly 50% crude 50% nat gas in production iirc.
The biggest problem I see is that PetroChina is doing anything in its power to get access to the middle east oil fields, even if it means only $5 a barrel profit after expenses as the max possible.
Why pick up Big Oil when you can pick up Chinese solars on the cheap? If you prefer American solars, then you got some excellent choices there too. Solar is a leveraged play on oil, but beyond that, it's the future. Period.
Disclaimer: I will admit that after spending a good time going over what the best hedge funds were buying in Q2, I got many other ideas than solar. Yes, they bought BP, XOM, and big oil, but they were busy buying other stocks too. I got great insight from taking a sneak peek at their holdings. Focus on their largest positions, and new positions.
What's the EROEI of PV solar, Leo? I see calculations all over the place, from 1:1 to 30:1. Is there any empirical data on this?
I think your reply would be better received on Yahoo Finance forums.
but wait - he had tea with the Rockafellas so ya better pay attention!!
oil is going to be cheap since people are broke
Mostly long cash and bonds because I expect the Fed to stop printing before we get a crack-up boom.
Also long physical gold, gold miners, and some very select equities like XOM in the event I'm wrong, and we get the crack-up boom.
Why Zero Hedge would print this twaddle is beyond me.
believe it or not, MHFT has had posts that were weaker than this cursory analysis of XOM....I just ignore his posts and look for more relevant pro-gold pieces that ZeroHedge is becoming famous for (I'm thinking of the Matterhorn Asset Management and Mike Krieger write ups throughout this summer)
I look at the chart, 56 is pretty important support for this guy. That would be a logical entry for a quarter of your position with a stop below.
I would also be dissuaded by the group's action. COP chart frankly looks like shit, forming up an H&S with the neckline at 48. CVX looks like shit. BP looks like shit. Group move is at least 70% of a stock's move; you know that. The fundamentals may be perfectly right, but I would argue this is many points from the time to put capital at risk.
Agreed on the technicals. When the time comes, though (and I think we're not long now), long XOM calls are going to be PHAT!
While XOM is a great company, I think you are missing the word D in depression, likely to crush oil prices as demand withers.
Spot on. Seems like this analysis was done using pre-2008 antique thinking. Those days are long gone.
When XOM was reporting record profits they went for large stock buy backs jacking the price of their stock which triggered bigger bonuses for execs...the old fashioned way to rape shareholders...goes well with bell bottoms.
All IOCs (independent oil companies) in the world have access to less than 8% of the worlds oil reserves...Most soverigns have a tighter grip on the oil they own these days and can fund their own exploration and production.
If someone told me that I was '1 of 70,000' people in their rolodex I would not think it a compliment. If the owner of the rolodex talked for 5 minutes to everyone he knows it would take him about 280 days to work thru the list...if he didn't take a long lunch break or do anything else.
They've been performing stock buy backs for over a decade it seems. They are just trying to lower the share count from the merger. It may lower their market cap in the long term but it also cuts down on dividend payments.
I sure want to take the long side of Exxon when Chanos is on the other side... Or not.
has it been established that this is what Chanos is shorting? i will grant you that XOM oil production has slid for years, but they have other profitable businesses including their premiere chemical division.
i would not be surprised if the Chanos short was on another integrated oil company (COP) or even a Valero both of which don't have the diversity of earnings that an XOM exhibits...just my 2 cents
Fascinating...
As $ 144 oil would destroy the current shaky recovery immediately, I don't see oil going over $ 100 soon. Instead they will keep it in a trading range between $ 60 en $ 85, which is rather painful for some of the OPEC countries.
Like Iran and a few others really care about the 'current shaky recovery', especially when it comes to matters of perceived national survival or fundamentalist Islamic fervor? Which 'heads' prevail remains to be seen, but rest assured, if the Strait is mined or closed by threat, you will see $150 oil in the rearview mirror before long. With double dip talk ever more popular as the 'recovery' falters, one would expect the current oversupply of oil to pressure prices downward, but actually play that geo-political wildcard and all short-oil bets will be losers in relatively quick order. Consider also that Venezuela seems ever more aligned with the Iran axis, and al-Qaeda can be counted on to do its disruptive best to further complicate matters for the US.
Obviously the length of disruption is crucial as regards the degree of the resulting oil price spike -
XOM is a bell bottom kind of investment. They were a powerhouse in their day, the first corp to post a billion $ profit quarter, once the largest capitalized corp in the world. But their production has been falling for years, and they have stopped spending on exploration, largely because they are shut out of the most promising exploration areas due to sovereigns noticing peak oil and keeping it for themselves and requiring only local talent to develop it. XOM has branched into LNG a little, but otherwise does not seemed concerned that their business model is now a dinosaur. Like the US, XOM is living on past and/or imagined glories. It is currently fairly attractive as a trade, being well below its trend line, and you can be sure the cartel will manipulate the crude price higher or much higher, when you recognize how much the cartel looted on their last test manipulation to $144/bbl. With higher crude prices, XOM can remain a cash cow for a long time, but we are definitely past Peak XOM.
By my reading of their 10-Q and a little arithmetic, it looks to me that XOM only produces 60% of the crude it refines into finished product. It has to buy the other 40% on the open market at current (meaning "high") prices. So as crude rises, their refining margins shrink. They seem to be the most sensitive major oil in this regard. If you look at a chart of the price of crude (XOIL) during the big run-up, along with charts of the major US oils, you will see that XOM topped out first, followed by Chevron, then Conoco.
i see a "geo political risk in reverse" trade emerging in this space as Iran "goes nuclear" and the "oil world" is rightly terrified. In short contrary to what most people think "World War III" in this form I construe as bearish for oil. i think the depressed level of the equities raises a red flag for the commodity of oil and would avoid adding to the sector until after the election. This is especially true since the Federal Government has "trillions in unspent stimulus" equal to coporate America's so called "trillions on the balance sheet."