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.
Earlier this year Exxon announced plans for 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 analysts remain very positive and said this when Exxon reported:
Despite some confusion on the company’s reported earnings, we contend that on a peer to peer comparison the first quarter is a clean beat versus the street. COVID-19 is the great equalizer. All majors will lean on the balance sheets, but Exxon can reduce spending as needed with growth in the recovery. The second quarter promises more sticker shock but Exxon’s yield pays investors to wait through this downturn with growth beyond.
The company pays investors a huge 8.29% dividend, which probably will be defended as well. The $70 BofA Securities price objective is well above the $47.27 Wall Street consensus. Exxon Mobile stock closed Monday up almost 8% to $45.34.
This is another solid way for more conservative accounts to play the energy sector. Marathon Petroleum Corporation (NYSE: MPC) is currently one of the largest independent petroleum refining and marketing companies in the United States. The company operates approximately 2,750 retail sites under the Marathon and Speedway brands. In addition, Marathon Petroleum operates a logistics network of pipelines, barges, trucks and terminals that store and transport crude and products.
Despite a plan to spin-off Speedway, the company announced in late February it would invest $550 million in the chain. The investment will focus primarily on converting convenience stores the company added to its portfolio through several acquisitions over the past two years — notably, its strategic combination with San Antonio-based Andeavor in the fall of 2018 — to Speedway’s branding and systems.
First-quarter results were very solid and the analyst said this looking forward:
First quarter with new CEO Hennigan sees free cash flow right sized to cover a sector leading dividend yield. While proposed as a response to COVID-19, the ongoing review may have longer term implications. Top refining pick: deep value with underappreciated cash flow capacity and refining leverage from an advantaged system.
Shareholders receive a 6.64% dividend, but this one may be trimmed. The BofA Securities price target is $56. The consensus target is $46.14, and Marathon Petroleum stock closed at $34.95, up a stunning 15% on Monday.
We stayed with exploration and production companies and a refiner, avoiding oilfield services due to the continued potential for domestic and foreign production cuts and shut-ins. The energy sector will remain volatile, but scale buying shares now and being patient could bring some solid gains for investors. With the country opening back up, and the busy summer driving and vacation season all but upon us, demand looks to move substantially higher.
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