Shares of Exxon Mobil NYSE: XOM fell by as much as 1.8% during the early hours of Friday's trading session; the decline is happening on a day when the broader markets (namely the S&P 500) are up by a third of a percent. The initial reaction can be attributed to markets digesting the latest figures released by the oil giant during its second quarter of 2023.
Investors may be sweating today's decline, thinking there will be a possible pullback - or even turnaround - from the latest bull run seen in the stock during the past year and a half. While nobody can dismiss the possibility of a pullback, buyers and potential buyers have one task at hand today, decipher whether the longer-term trend will be bullish or bearish.
Traders and investors can utilize the following tools to form a proper view of the stock's future, align these indicators with the financial developments management laid out, and come out ahead with a decent edge over the rest of the market. Market sentiment is on the same page as analysts, pointing toward double-digit returns in the making for Exxon stock.
The Trend is Your Friend
Dissecting Exxon Mobil's stock chart, investors will notice a steep and narrow uptrend channel, with no visible road bumps to slow it down soon. Today's decline in the stock has only given investors a new place to purchase some exposure in the giant, as today's price is about to showcase an aggressive accumulation due to a multi-year support level.
As seen in the image above, the thick red line will represent this multi-year support level, which is being tested today. Furthermore, the bottom end of the uptrend channel is also being pushed, making it a double whammy formation leaning toward a new recovery move. Next week may be too late to consider buying in.
Apart from momentum and reasonable support keeping the stock from going any lower, one other simple yet powerful factor is present in this simple chart. The purple line across the price candles is the infamous 200-day moving average, often seen as a proxy for bull and bear cycles within any instrument.
Although briefly, crossing below this 200-day moving average puts Exxon at a heavy inflection point. This is the first time in more than 18 months that the stock has crossed below this level for more than a week. The next chapter can be defined as Accumulation or dumping? There are reasons to believe that investors will be looking to accumulate more stock rather than sell, for reasons to be broken down next.
Studying the Landscape
Comparing Exxon's valuations with other big players in the battlefield can further clarify why Exxon stock is the clear choice. The only two other oil names that even compare to Exxon's massive size of $413 billion in market capitalization (computed as the stock price multiplied by the number of shares), are Chevron NYSE: CVX and Shell NYSE: SHEL.
Looking at the past is not as helpful as trying to figure out the future, which is why traders typically focus on studying a sector's forward price-to-earnings ratio; this way trying to gauge where markets are finding the most value and quality in the next twelve months of earnings for a niche.
Exxon Mobil is trading for an 11.8x forward P/E, closely followed by Chevron's 11.4x and miles ahead of Shell's 7.4x. Before value investors begin to complain that this dynamic only makes Exxon the more expensive alternative in this small group, a reminder that there is always a reason behind something being 'cheap' or 'expensive' should be in place.
Today's earnings release from Exxon can paint a clearer picture of why markets are seeing a higher quality in Exxon's business model over those of competitors and beginning with the premise that 'money likes growth' and speed, for that matter, annual growth rates and momentum buildup in Exxon's drivers start to form a strong thesis.
Management plans to grow its Permian output at a rate that would double the pace of competitors, driven by quarterly record earnings of $7.9 billion. The company achieved record financials, and other metrics like production also represented a quarterly record. The cherry on top will come from the highest level of global refinery throughput in the past 15 years.
Now that the technicals and fundamentals managed to agree, an event that very seldom occurs, investors know that markets are loving this stock for the potential future growth in the business in the next twelve months. Management is the last pillar of agreement supporting this trend as well.
A massive $8.6 billion of free cash flow was allocated to the repurchase of common stock throughout the year, which is the ultimate sign from management regarding the belief that the stock is undervalued. Analyst ratings also point to a further 20% upside ceiling from today's prices, literally the perfect storm for a new rally.
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