After crashing for over a year, it looks like oil prices have finally stabilized. Though oil prices have fluctuated through a couple of considerable ups and downs recently, it is still far away from the highs achieved prior to the massive drop. On the other hand, natural gas has also been facing problems for even longer, and this is the primary reason why stockholders are moving away from oil stocks.
ExxonMobil (XOM, Financial) is one of the largest integrated oil companies around the globe, as it perform almost every operation from pulling oil and natural gas from the earth to processing it and supplying it to end users. However, the company is facing many problems, as its revenue has dropped significantly from $111.5 billion in the second quarter of 2014 to slightly more than half $57.5 billion in the latest reported quarter.
However, on the bright side, the company is holding up better than its rivals. The company has endured increasing its dividend from the last 34 successive years, whereas Exxon’s foremost rivals, Royal Dutch Shell (RDS.B, Financial) and Chevron (CVX, Financial), have put dividend hikes on hold for over a year.
Most importantly, ExxonMobil is the possibly the best capital allocator in the industry. The company is putting in a lot of effort to reduce costs and raise returns on invested capital, and it has the anticipation to invest via cycle that so many seem to overlook.
Furthermore, the company has publicized that it has discovered the Liza well off the coast of Guyana. Not only this, the company has also acquired InterOil (IOC, Financial) for $2.5 billion. Both of them together have recoverable resources in 2.5 billion barrels of oil equivalent.
As a matter of fact, that is more than enough to substitute this year’s production and cover any deficits it had in the prior year. It is worth mentioning that ExxonMobil still has a lot of prospects at just these two sites.
Conclusion
Oil prices will eventually move higher, and for investors who don’t want to time the rise but still want to benefit from it, ExxonMobil is the best pick. The industry leader has many things going for it and is a better pick than its rivals due to its reputation of increasing dividends. As a result, I would rate ExxonMobil a buy at current prices and I expect it to offer over 20% upside in the long term along with its dividend, thereby making the stock a great choice.
Disclosure: No Position in any of the stock.
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