XOM and SLB: Energy Leaders

09/26/2003 12:00 am EST

Focus:

Charles Carlson

Editor, DRIP Investor

Two leading advisors offer top picks in the energy sector. Chuck Carlson, editor of DRIP Investor, suggests ExxonMobil, the largest oil company. Leo Fasciocco, editor of The Ticker Tape Digest, selects Schlumberger, a leader in oil services. Here are their comments.

"ExxonMobil (XOM NYSE) is the largest publicly traded oil company," says Chuck Carlson. "Reserves as of the beginning of this year were 12.6 billion barrels of oil and 55.7 trillion cubic feet of natural gas. High energy prices have fueled big gains in the bottom line. Profit in the second quarter rose 58%. For 2003 overall, the consensus earnings estimate for ExxonMobil is $2.33 per share. ExxonMobil is the quintessential ‘easy-hold’ stock. These shares will never be at the top of the leader board in a given year, but these shares generally provide steady returns year-in, year-out. Though the bottom line will ebb and flow with energy prices, ExxonMobil’s operating structure is such that the firm should be able to crank out healthy profits even if oil prices retreat to the mid-$20s. I own these shares and recommend them for any portfolio. Enhancing its appeal is ExxonMobil’s dividend reinvestment plan, which is perhaps the most user-friendly plan available."

"Our latest featured breakout stock is Schlumberger (SLB NYSE), a major oil-service firm with annual revenues of $13.5 billion," notes Leo Fasciocco.  "SLB is a turnaround play that will show an improvement in quarterly earnings. This year, we are forecasting a 23% increase in net to $1.48 a share. Looking ahead to 2004, we see net climbing 35% to $2 a share and for 2005, another 32%. Accelerating earnings growth can be a big driver to send a stock higher. Technically, SLB is in an uptrend, having rallied from 36 earlier this year. The breakout to new highs could well be the signal for the oil-service plays to begin to move, and SLB could be the leader of this emerging group. We are targeting the stock for a move from 62 to 64 within the next six months. A protective stop can be placed near 47. Institutional sponsorship is excellent (Fidelity Magellan is the largest fund holder), and insiders have been big buyers lately. We rate SLB an excellent intermediate-term play."

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