Exxon Mobil: An Out-of-Favorite Buy?

12/11/2019 5:00 am EST

Focus: ENERGY

Charles Carlson

Editor, DRIP Investor

Few stocks have been as frustrating as Exxon Mobil (XOM). Just when you think the stock is embarking on a sustained upward move, investors turn thumbs down on the energy group, driving these shares lower, notes Chuck Carlson, dividend reinvestment specialist and editor of DRIP Investor.

The stock has had a rough go of it for much of the year and has been channeling sideways in recent months. What has provided a big headwind for the stock has been energy prices, which have not been able to sustain much upward action.

Does that mean that investors should eschew energy stocks such as Exxon Mobil? Ironically, the fact that the group has been so out of favor intrigues me from a contrarian standpoint.

 Exxon Mobil is the fourth-worst performing stock in the Dow Jones Industrial Average over the last 12 months, down some 10%. History shows that lousy Dow performers in one year tend to register nice rebounds the following year.

While I am optimistic that you’ll see these shares rebound in 2020, my guess is the stock will remain under pressure for the next few weeks. That’s because I expect the energy sector to realize a fair amount of tax related selling.

Given the strength of the market this year, there aren’t a lot of sectors and stocks that investors can sell to harvest losses to offset investment gains. However, the energy sector has its share of losers, thus it has its share of tax-harvesting opportunities.

Despite what appears to be a gloomy outlook for the energy sector, I’m not ready to give up on Exxon Mobil. The stock is a charter member of the Editor’s Portfolio, and time has shown the wisdom of buying these shares and consistently reinvesting dividends over the years.

Despite periodic rumblings that dividends of energy stocks will eventually become challenged, I believe Exxon Mobil’s dividend is in good shape, and the company’s 6% dividend increase earlier this year supports my belief.

The current dividend yield of 5% is appealing in this low-interest-rate environment and is probably one of the reasons these shares have consistently held the mid $60s. If the stock succumbs to more selling before year-end, I would be willing to buy the weakness.

Exxon Mobil offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company. Minimum initial investment is $250. There are no fees on the buy side in the plan.

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