Exxon Mobil (XOM)

[quantumleap]

CNB:

Your post was definitely thought-provoking. Here are my comments on some of your points.

QL, I too like and happen to own some XOM stock. Not a lot but I feel it belongs in any diverse portfolio. Having said that, I am not sure I would want to be ONLY in XOM, maybe I misunderstood your post. Not trying to be critical, I tend to sound that way in my messages, but dont mean to.

I don't think it's ever good to have just one stock. It's always good to diversify.

If, for instance you are fairly sure oil will be up in the 100/barrel price range, you can simply buy the symbol USO, and get full benefit of that move without having to hope Exxon will gain equally in the rising cost of the commodity. This would net you roughly a 50% gain in your account, based on todays crude oil price of 69.00 per barrel. (the us oil fund on the amex tracks the spot price almost perfectly). However, you do not receive a cash dividend in the meantime, if you took that route.

I had just been looking at USO last night and today. The difference between USO and XOM is that I was hoping XOM would split sometime in the future (hopefully after I had a few shares bought) whereas USO will not. Both stocks will benefit from higher oil prices but XOM will almost double in price with a split.

Companies that buy back their stock. I like the fact that they have cash to do that, and are willing to do it, it signals they think the stock is cheap relative to the market.

Sometimes buying back stock can mean the cash reserve is better utilized by reinvesting into themselves, but this can also be seen as a signal that management sees no opportunity to further grow outward, and therefore wants to reduce the number of outstanding shares, before the PPS takes a hit, or shows flattening out. But if this is the case, it can still be temporary and minor. And with a company this size, that is dominating its competition in a monopoly, it doesnt scare me as much as it would if it were, say........McDonalds, or in this case, Autozone auto parts.

From what I am reading, Exxon does feel that they can grow outward. Most oil companies are continuing to invest in oil exploration.

You mention the 2 for 1 stock splits. I do not know the history of Exxons stock buyback announcements over the past 15 yrs, but would think they would not plan on splitting it anytime soon, if they are now embarking on a re-purchase track. It sounds like they want to reduce the number of shares outstanding, and if true, that would fly in the face of splitting and issuing 100% more shares of stock out into the market. Also, the share buyback program can help either reduce the amount of cash outlay via the dividends paid (on fewer shares), OR they can increase shareholders dividends and make the stock even more attractive to buyers. Dont know which way they would go on that, and would advise you to research it.

You make good points here that sometimes a company buys their own stock to reduce the number of shares outstanding. If this were true with Exxon (and it very well may be) then a split would not happen any time soon as you mention. However, is it possible that they are not trying to simply reduce the number of shares oustanding, but instead believe the profit would be best invested back into the company independent of the number of shares? I don't have the answer to this so I think I'll do some research.

I know that some shareholders are grumbling that they would rather have a higher dividend than having the company reinvest in itself.

One last thing, the Democrats and media tend to Hate Exxon, and you have to wade thru that, with an election coming up, but the track record speaks for itself.

I hadn't thought of that. I would think the stock would do better under a Republican administration.

Thanks for all the input.

 

[quantumleap]

I found the reason for the stock buyback by Exxon. It's to increase the percent ownership in the company that each share has. In other words, if Exxon buys up shares of its own stock there will be fewer shares. Each share will then represent a higher percentage of company ownership.

For example, if a company has 150 shares outstanding and buys out 50 of those shares, there will be 100 shares left. Before the buyout each share was 0.67% of the total number of shares. After the buyout each share represented 1% of the total number of shares.

I don't believe the buyout is simply to lower the number of shares, but instead is meant to give more value to those shares already purchased. This makes an investor more willing to buy shares since those share will be worth a higher percentage of company ownership in the future.

Here's the quote I read that explains why Exxon is buying up its own stock. This quote is from Exxon executives at the following web site:

http://www.niemanwatchdog.org/index.cfm?fuseaction=ask_this.view&askthisid=00209

"ExxonMobil has distributed over $38 billion of cash to shareholders through its flexible share purchase program during the past five years. By reducing the number of shares outstanding, we increase the percent ownership of the company that each remaining share represents. Since 2001, we have reduced the number of shares outstanding by 11.5 percent, thereby contributing to increased earnings and cash flow per share."

A split would not dilute the percentage ownership of each individual since each individual would have twice as many shares as before. I'm thinking stock splits occur when the stock price gets to a certain price so as to be unattractive to the common investor. People are less likely to buy a stock at $160/share than they are at $80/share. The nice thing about Exxon's splits is that the price of the stock returns to the price before the split in a relatively short amount of time.

 

[Darwinian]

I would have to be a seller if it gets back near its highs.... you guys are late to the party.

Money will rotate out, considering the bearsish outlook for oil

 

[quantumleap]

I would have to be a seller if it gets back near its highs.... you guys are late to the party.

Money will rotate out, considering the bearsish outlook for oil

Darwin, oil may be bearish in the near term but it is bullish in the long term and that is why I'm looking to invest in this stock. I'm thinking 10 to 15 years worth of investment in this stock. In that time it will have split a couple times all the while going up in price.