Investment Observation: ExxonMobil (XOM) at $65.90

The next and most anticipated investment observation is ExxonMobil (XOM). XOM has been on our new low watch list since October 30, 2009. According to Mergent’s, XOM has increased its dividend 26 years in a row. XOM is described by Yahoo! as “Exxon Mobil Corporation engages in the exploration, production, transportation, and sale of crude oil and natural gas.”
The biggest item regarding this company is the fact that the Coppock Curve is signaling, or is about to signal, an all clear for the purchase of XOM stock. In the chart below, you can see the unique buy signal that is given whenever the stock goes into negative territory and then turns upward. Not until the signal crosses from negative to positive does it indicate the best opportunity to buy XOM.
On the following five occasions, XOM turned decidedly higher:
  • September 1974 up 207% in 2 years
  • January 1978 up 194% in 2 years 10 months
  • March 1982 up 491% in 11 years 1 month
  • June 1994 up 333% in 6 years 6 months
  • February 2003 up 279% in 4 years 8 months
On average, it took 5 years and 3 months to reach the peak in the stock price before a major decline. The worst price decline immediately after the Coppock Curve buy signal was 11% in 1982.
According to Value Line dated June 27, 1997, XOM normally traded at a mean price of 10 times cash flow. In the most recent Value Line dated December 11, 2009, XOM is expected to trade at 8 times cash flow. XOM had a cash flow of $11.58 per share in 2008 and an estimated cash flow of $6.50 for all of 2009. Using the lower cash flow estimate for 2009, XOM is expected to be fairly valued at $52 per share. This is despite the fact that Value Line has a higher cash flow per share for 2010 of $8.45 per share.
Working in favor of XOM is the fact that the company has decreased the number of shares outstanding from 6.9 billion in 1999 down to 4.75 billion at the end of 2009. XOM has gone down a separate path of other companies that borrow in order to lower the number of shares outstanding. Debt remains a small part of XOM’s balance sheet.
One of the most significant elements of the downside risk to this company is the fact that, to this point, we’re in secular bear market. This means that the market could turn down at a moments notice. Therefore, I will use the Dow Theory downside targets based on the price increase from the low of $33.23 in February 2003 to the high of $95.05 accomplished October 2007. The Dow Theory downside targets are:
  • $64.14 (fair value)
  • $53.83
  • $33.23
It remains to be seen how much XOM continues to fall. However, based on the prior Coppock Curve indications, XOM is expected to remain unchanged or fall for another three to six months by about 11% to 18%. However, if you’re willing to buck the trend of the overall market, this stock will make for a great 3 to 6 year holding. Get your research in before the upcoming dividend payment and good luck.

If we were to invest in stocks the way that Charles H. Dow would then we would buy half of the intended amount now and purchase the second half if the price declines. For example, let's say that you wanted to invest $13,180 in this company. What you would do is buy $6,590 worth of stock now (approximately 100 shares) and hold the stock if the price goes up. If the stock goes down then you would invest the remaining $6,590 at the next level that you felt was ideal. This approach works well regardless of the market that you're in as long as you set aside the amount that you intend to invest before making the first purchase. Also, after making the first investment never invest the second half somewhere else.
The purpose of my research recommendations is to point out quality Dividend Achievers that have reached a new 52-week low. From this point begins the research to verify the quality of the stock for both short and long-term investing. These recommendations are within the context of the 3rd year of an 18-year secular bear market. A bear market that I expect to trade in a range between 16,000 and 5,000.


One response to “Investment Observation: ExxonMobil (XOM) at $65.90

  1. Thanks for the great analysis. XOM has a great record of growth, however, as you incicate, bucking a secular bear market is tricky business.