The way the global market is moving, even the obvious seems to be unpredictable. The market is infested with uncertainties and has made the movement in the market directionless. Under such volatile situations, the universal truth is that "Cash is the King." The sheer global uncertainties have given rise to high volatility. Under such situations, people who have cash on hand are in the governing position. They can actually buy the stocks of certain companies with attractive price tags and wait for a period to cash the yield in the long run.
With the International Monetary Fund skeptical about global economic growth rates, stocks have taken a serious hit over the last week. Companies across the board were hit hard, as Germany might now even be heading for a recession. Germany has been pulling the European economy for some time, and a slowdown in Europe's largest economy is likely going to have some negative short-term effects on growth in Europe, and maybe even on a global scale. The U.S. is doing somewhat better at the moment, and I continue to be bullish on the world's largest economy.
The global geopolitical upheaval has started taking its toll on the world economy. The tension between Russia and Ukraine, the advances of ISIS in the Middle East, and a new series of bombing by the United States in Syria, all had a negative impact on company valuations, and the worst to be hit is the oil sector.
Oil matters and Exxon Mobil
Oil prices have taken the worst beating due to the prevailing international tensions. Whenever there is a geopolitical unrest such as war, the first and the most badly affected is the oil sector due to its nature of operation, especially if the unrest is in or around the Middle East, which holds the key to almost 80% of oil resources across the globe. Spot prices of crude have already reflected the appalling state of current world affairs.
Though oil prices are currently bottoming out, I still hold a strong belief that depleting fossil fuel reserves of the current resource points will ultimately lead to positive price momentum and higher oil prices, which will benefit all exploration companies in the energy industry. A prominent name amongst such companies is Exxon Mobil (XOM, Financial) which is bound to shine in the near future.
With the ongoing economic uncertainties and new geopolitical conflicts panning across the globe giving rise to an extremely volatile market, let us take a close look at stocks that investors with cash on hand can consider and reap the benefits of in the near future.
Super cap companies like Exxon Mobil are likely to be somewhat resilient, should the global economic turmoil settle down over the next year, which makes an investment in the energy company a viable option. Exxon Mobil is a highly diversified energy sector company with access to strategic oil and natural gas reservoirs around the world. No matter what happens, Exxon Mobil is probably going to be in business for at least the next 40-50 years, which is why I personally feel the energy company could be a key player in terms of long term holding for long-term oriented investors who seek exposure to the oil and gas industry as well as long-term capital appreciation potential. Let us do a postmortem of the basics of Exxon Mobil.
Share performance
Exxon Mobil's shares have grown by 7% in value over the last 12 months, but have also seen a downside of 8% since the start of this year. The disappointing year-to-date performance can be attributed largely to the recent equity market selloff and the buying slump. Exxon Mobil has lost more than 12% of its equity valuation since the end of July.
Market valuation
Exxon Mobil shares seem to have bottomed and are currently highly oversold. This has brought the share prices of the company to such levels that are highly lucrative for fresh buying and for taking positions for a long period. The largest oil and gas company in the world with substantial free cash flow strength —Â Exxon Mobil —Â raked in almost $15 billion in the first two quarters of 2014 alone, and now trades at only 12 times of estimated 2015 earnings.
The average P/E ratio for the sector consisting of Exxon Mobil, Chevron (CVX, Financial) and Conoco Phillips (COP, Financial) stands at 11.17x, highlighting the fact that all the companies in the energy peer group are highly oversold and would be a good buying bet for long-term investors having cash in hand.
Dividend yield
Exxon Mobil stock is also a strong contender in terms of investment for income investors looking to earn at regular intervals from dividend yield. The company is currently generating 3% dividend yield for its shareholders. While the other two companies in the same business function offer a slightly higher dividend yield, Exxon Mobil with its iconic legacy of payment history looks more reliable as a regular dividend payer. From the first quarter of 2008 to the third quarter of 2014, Exxon Mobil's dividend payout has almost doubled from $0.35 per share to $0.69 per share. Going by the street information and my analysis, the dividend yield is expected to increase due to its strong growth indications of free cash flow.
Bottom line
Summing up from the above postmortem report, Exxon Mobil at the current levels of just 12 times its projected earnings and with a sustainable 3% dividend yield, is an interesting investment bet for both category of investors: those who seek capital appreciation as well as investors looking for regular earnings through dividend yield. Exxon Mobil also allows investors to take the advantage of long-term energy sector trends like depleting oil and natural gas resources, which should ultimately lead to higher energy pricing, and potential upswing in the share prices of the largest oil and gas sector company in the world.
Considering Exxon Mobil's enormity of business function, the down side risk of the company would be of less impact than its peer group companies. Owing to the fact that the company is highly diversified in terms of its geographic demography when it comes to tapping natural resources, this further reduces its downside risk factor in the face of geopolitical crisis. Therefore, going by the above analysis, Exxon Mobil shares are on a strong buying alert for the patient value investors.
