Should You Stay Away from ExxonMobil Stock?

PHOTO CREDIT: ExxonMobil

OVERVIEW

ExxonMobil Incorporation is a company based in the United States. The company produces crude oil, natural gas, and the products that can be processed from crude oil (like gasoline, petrochemicals, etc.). The company was founded in 1870.

Why You Should?

  1. ExxonMobil is a decent reopening play in an investor’s portfolio. The pandemic crushed the demand for oil and gas products as people stayed indoors and stopped travelling. In addition to this, the industrial economy around the world came to a grinding halt as the pandemic took hold. However, once this pandemic is over, these sources of revenues will return and will cause a rise in the stock price.
  2. ExxonMobil is one of the largest oil companies in the world and it can use this scale in order to recover from the pandemic. For example, it can quickly take up new projects in order to increase the supply of oil once again as markets around the world experience skyrocketing demand for oil products. This will benefit the company and its investors.

Why You Should Not?

  1. ExxonMobil faces tough competition from many other domestic and international companies in the oil and natural gas industry. Some of these competitors include Chevron, Shell, BP, Saudi Aramco, and many others. This competition might hurt the company and its investors as well.
  2. The COVID-19 pandemic has crushed the demand for oil and gas products. This caused the company to report increasing debt levels and horrible operating results during the past financial year. This is due in part of people staying at home and the shut down of the industrial economy (which uses a lot of petrochemicals and oil products). This has hurt the company and has also hurt investors in the company.
  3. ExxonMobil will have to fear Joe Biden’s new climate plan. Though he will not ban the production of oil in the United States, he will definitely make it harder to and incentivize the use of green energy (like electricity) in the United States. More regulation and other taxes on the oil and gas industry will hurt ExxonMobil’s operating results and its investors as well.
  4. In my opinion, I do not think that the oil and gas industry is the future of the energy industry. In fact, we have seen that electric vehicles (especially Tesla’s) can outperform their gas counterparts in every possible way except range. Once this technology is further developed, it will be a no brainer for people to switch to EVs. Governments around the world also agree with this. This will hurt the company and its investors.
  5. ExxonMobil has reported falling revenues and profits over the past couple of financial years due to the reasons mentioned above. This has hurt the company’s growth plan and has also hurt investors in the company. I think that ExxonMobil might recover in the short-term but will not do so well in the long-term due to the adoption of green energy solutions. In the financial year of 2020, the company reported revenues of around 179.78 billion and a massive loss of around 22.44 billion. Both of these metrics are lower than what the company reported in the financial year of 2019 when they had revenues of around 255.8 billion and profits of around 14.3 billion.
PHOTO CREDIT: Yahoo Finance

MY OPINION

I do not think that investors should put money into ExxonMobil due to tough competition, negative impacts from the COVID-19 pandemic and a Biden administration, the rise of green energy solutions for the future of the energy industry, as well as falling revenues and profits. However, its position as a good reopening play and its large scale to recover might benefit investors in the short-term.

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Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.

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Aaditya Patel

Aaditya Patel

Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.

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