Oil has been all over the place lately. The price of crude saw its sharpest decline in a while on Monday before rebounding Tuesday following reports Iran was open to capping production.
The pattern repeated over the following days, with prices falling Wednesday due to increasing inventories and bouncing on Thursday on strong durable goods numbers.
There’s no question that the weakness has weighed on both the market as a whole and the companies within the industry, but that doesn’t mean we can’t still find opportunities for longer-term profits.
The Case for Income in XOM Stock
I wrote an article back in May concerning the potential I saw in Exxon Mobil Corporation (NYSE:XOM), the largest publicly traded energy company in the world. It produces oil and natural gas around the globe, using technology and innovation to meet growing energy needs.
XOM stock has weathered the downturn in oil much better than the industry’s smaller companies thanks to its size and diversification, and even though XOM was nearing overbought territory following an extended rally, I believed the potential rewards outweighed the risks in terms of longer-term growth. Basically, if oil climbed, the stock would benefit nicely. If it didn’t, XOM was still set up to weather weakness better than its peers.
Click to Enlarge I was correct that higher prices were in the near future. The rally that XOM had begun in January — which used the 50-day moving average (the blue line) as support amid each healthy pullback along the way — lasted until July. The stock hit a 52-week high on July 15, and then support was broken on above-average volume.
The bad news is that Exxon stock has yet to bounce back. The good news is that the selling appears to have ceased with XOM in a consolidation pattern over the past month. Plus, XOM is holding above the 200-day moving average (the red line) at $84.60, which is a level it’s held since early this year.
I suspect shares of Exxon Mobil will continue in this range-bound trading pattern for the foreseeable future, with the 50-day moving average acting as resistance and the 200-day as support.
For XOM to build enough momentum to rally through the 50-day and retest its July high, I believe oil must climb back to its 2016 high. I don’t see that happening until later this year.
As a long-term investment, XOM is attractive to a certain investor who is comfortable with stagnant trading and looking primarily for income. The stock currently yields 3.4%, which is more than double that of the 10-year Treasury bond and would add nicely to a portfolio in the wait for long-term rewards.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks and the ETF Bulletin. Earlier this year, Matt and Hilary Kramer teamed up on Breakout Stocks where Matt serves as the Co-Editor. Most recently, Matt and Hilary joined forces again. This time, they are helping individual investors make money trading ETFs. For more on their latest project, visit www.etfedgesummit.com.
