Ray Dalio (Trades, Portfolio) is the founder of Bridgewater Associates – one of the world's largest hedge fund with $165 billion in assets under management. Last quarter, he increased his stake in Exxon Mobil (XOM, Financial) buying 24,768 shares. As of March 31, 2015, he was holding 168,868 shares of the company. The following chart shows his holding history in the company.
Exxon Mobil Corporation’s principal business is energy, involving exploration for, and production of, crude oil and natural gas, manufacture of petroleum products and transportation and sale of crude oil, natural gas and petroleum products. ExxonMobil is a major manufacturer and marketer of commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a wide variety of specialty products. Exxon Mobil Corporation has several divisions and hundreds of affiliates, many with names that include ExxonMobil, Exxon, Esso, Mobil or XTO.
The company is trading at a forward P/E of 16.29 and has a dividend yield of 3.40%. Exxon’s stock is under pressure of late due to falling oil prices. I believe recent correction is a good opportunity for long-term investors to build a position in the stock at an attractive valuation. Exxon has one of the healthiest balance sheets in the industry. This can help it fund not only organic expansion but also inorganic growth. According to Oppenheimer analysts Fadel Gheit and Luis Amadeo,
“ExxonMobil has an unparalleled financial flexibility, being the only AAA credit-rated company among peers and having 3.7B shares in treasury with a current market value of >$320B, or ~59% above the market capitalization of its largest competitor. It can theoretically acquire any company in any of its business segments conditional on winning regulatory approvals. We believe ExxonMobil will likely capitalize on its competitive advantage by making a large strategic acquisition in the current oil downturn to make up for the XTO acquisition, which proved to be disappointing. The recent dividend increase and $1B expected share repurchase in 2Q15 underscores ExxonMobil confidence and reassures its shareholders that it is different and a cut above the rest.”
On the organic growth front, Exxon Mobil expects to start up 16 major oil and natural gas projects during the next three years and is on track to increase daily production to 4.3 million oil-equivalent barrels by 2017.
In addition to growth prospects, the company’s healthy balance sheet also ensure that it will be able to maintain and grow its dividend despite of slowdown in oil and gas end market. Goldman Sachs analyst Neil Mehta, who has a sell rating on many oil majors including BP PLC (BP), Statoil (STO) and Chevron (CVX), rate Exxon a Buy. In his recent research report, he wrote
“We recommend investors Buy Exxon as the company represents the only US or European major that can generate sufficient free cash flow to cover its dividend near $60/bbl in 2016-2017. While other majors will be struggling to keep the dividend flat, we believe Exxon will actually be in a position to increase the dividend for the next several years…”
Last quarter, Exxon positively surprised the street with its EPS beating consensus estimates by 35 cents and revenues beating by $14.47 bn. I believe Exxon is a good buy at current levels given its modest organic growth prospects, healthy balance sheet, access to capital in case of inorganic growth through acquisitions and history of returning cash to shareholders through dividends and buybacks.
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