Energy Business

The Smartest Way to Play the Energy Collapse Is Mega-Cap Integrated Stocks

Lee Jackson

Exxon Mobil

This is another safer long-term play for conservative investors, and the energy giant is trading at 17-year lows. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.

Exxon has announced spending cuts amid the coronavirus outbreak that caused a price slide significantly aggravated by Saudi Arabia’s decision to start raising oil production. Exxon’s budget for this year and every year until 2025 was set at between $30 billion and $35 billion. Many on Wall Street feel that could be cut 10% to 20% or more. Note that Exxon has one of the highest paid American CEOs.

The supermajor was one of the few international oil companies that had ramped up spending levels over the past two years, aiming to grow production and shareholder value.

The company offers investors a huge 9.68% dividend, which probably will be defended as well. Merrill Lynch has a $59 price objective, which is above the consensus target of $52.50. Exxon Mobil stock rose over 5% on Wednesday and closed at $37.29 per share.

Royal Dutch Shell

This top international energy play for investors has been eviscerated in the energy sector sell-off. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and natural gas liquids.

Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.

In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, liquefied natural gas for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.

Shell says it plans to slash $9 billion from its spending to weather the collapse in oil market prices. The company has set plans to reduce its operating costs by between $3 billion and $4 billion this year, while cutting its planned capital expenditure by $5 billion to $20 billion for the year. Share buybacks have also been suspended.

Investors receive a huge 9.84% dividend. The $54 Merrill Lynch price objective compares with a $53.13 consensus figure. Royal Dutch Shell stock closed Wednesday at $34.34, after a jump of almost 7% on the day.

These three mega-cap companies are trading at super-low prices and, most importantly, offering investors perhaps the safest avenues for what many consider to still be a very contrarian bet. The large dividends that each pays appear to be safe and will help investors if the sector stays flat over the next year or so. One thing is for sure. These premium companies are trading at some of the best entry prices in 15 to 20 years and could offer big-time upside later in 2020 if crude prices lift.