Exxon Mobil Stock (NYSE:XOM)
Exxon Mobil Corporation (NYSE:XOM) stock has risen 250% from its lows in 2020 to its highs in 2023. When looking at a long-term chart, it is clear that Exxon Mobil’s stock has made a parabolic and highly unusual move. Nonetheless, despite all of the positives, the stock just can’t seem to go any higher.
At this price, Exxon Mobil stock has been rejected multiple times. You’ve probably heard of the “Double Top” reversal pattern. This is known as a “Multiple Top” reversal pattern, and it increases the likelihood of further decline. Another recent technical issue is that the stock has now broken below critical support at the 200-day SMA. Furthermore, there are a number of individual and macroeconomic issues that do not augur well for the stock in the future. I’ll put them out in the sections that follow.
Successful Investment Is Counterintuitive
When others are greedy, be afraid.
I’ve been managing my own portfolio for the past 30 years. I’ve seen it all throughout the years. One common investing error is that many people tend to buy in at the highs and sell out at the lows. This is because buying in equities goes completely against human nature. “Be greedy when others are fearful, and fearful when others are greedy,” as Warren Buffett has said, is a fantastic example of the counterintuitive nature of successful investing.
Purchase at the peak of pessimism.
Sir John Templeton’s phrase, “Buy at the point of maximum pessimism,” is another of my favorite investing quotes. Exxon Mobil was the best time to buy when it was utterly out of favor and trading at all-time lows in 2020. However, this is not an easy task. To guarantee you have an accurate knowledge of the actual facts, you must be courageous in your convictions and conduct your own due research. Here’s another proverb to remind you of the significance of completing your own work: “Believe nothing you hear and only half of what you see.” Allow me to explain why.
Believe only half of what you see and half of what you hear.
This adage basically indicates that you shouldn’t believe everything you hear. This is particularly crucial when considering whether to open a stake in a stock. In fact, if there appears to be a seemingly unanimous belief that a stock has nowhere to go but up, that is a massive red flag.
It’s difficult to go against the grain in these situations. Furthermore, I don’t blame anyone for recently hopping on the Exxon Mobil bandwagon. Nonetheless, as many of you who have been following me are aware, I have not bought into the large bullish catalysts that many have been touting for the past year or so. China’s reopening; OPEC+ production cuts; and the tight supply/demand equation persisting indefinitely have been the three key positive catalysts. The truth is that all of these positive triggers have already been priced into the stock at the current level. This is why.
All of the good news has already been factored in.
Investors are frequently swept up in the excitement. When a stock has a parabolic rise, word spreads quickly. That is precisely what happened with Exxon Mobil. All investors are hearing is that the supply/demand balance will stay tight for the foreseeable future, that oil will reach $120 owing to OPEC+ production cutbacks, and that China reopening will further squeeze oil’s price from the demand side.
The issue is that all three of these tailwinds have been around for quite some time. All of the good news is eventually priced into a stock. Why do you believe the stock is up 250% from its lows? It’s because almost everyone has already jumped in. Nonetheless, many investors are dazzled by the prospect of future riches because the stock has performed so well in the past.
Many investors who purchased recently, before the current earnings and following the OPEC+ production cuts, had “visions of sugar plums” for sure. One Seeking Alpha commenter on my last post predicted that XOM stock will reach $250. But the truth is that all of that wonderful news was already in stock. Finding a stock that is not well reported or in the news is the key to making outstanding investments. You buy it before word spreads that it is a fantastic company. Alternatively, investing in a stock when it is trading at the “point of maximum pessimism,” rather than when everyone is in love with it. Another concern that has emerged is that the three key triggers that everyone has been screaming about do not appear to be playing out as planned.
Things aren’t always as they appear.
You’ll often hear something and think to yourself, “That has to be true.” However, like the proverb “Things aren’t always as they seem,” certain events may appear to have a specific ending, but they frequently turn out to be something quite different.
More than a million BPD OPEC+ output cuts aren’t everything they’re cracked up to be.
Take, for example, the OPEC+ output cuts. When it was first revealed, everyone was talking about how it would remove over a million barrels of oil per day off the market. However, the truth is that I greatly doubt this is the case. OPEC+ no longer has authority over its members as it once did. Furthermore, countries such as Russia and Iran are increasing output rather than decreasing it. Furthermore, some of the cuts were already incorporated into specific members’ production levels, thus the actual reduction was most likely less than 1 million barrels in the first place.
China’s reopening has been a flop.
Given that China’s economy rebounded nicely in the first quarter, many expected the trend to continue in the second quarter. Nonetheless, the National Bureau of Statistics reports:
“While the first quarter “had made a good start,” domestic demand remained “inadequate,” and the “foundation for economic recovery is not solid yet.”
The main line is that the China demand story has yet to materialize. All of these diminishing demand considerations, combined with the increasing likelihood of a recession, have caused oil prices to fall drastically, even after the OPEC+ output cut and China’s reopening.
Let us now conclude this section.
The Conclusion
All of these changes indicate that the supply/demand equation is not always in a tight connection. I believe the boom-bust cycle will continue. The current dividend yield is where the rubber truly meets the road for me when it comes to making a purchasing choice. Let us have a look.
The dividend yield on Exxon Mobil is now 3.38%. In today’s environment, where you can obtain a 4-5% risk-free income in a money market account, I see no need for prospective investors to put their money at risk with the company at these high levels. However, if you are a long-term shareholder in retirement, I am not advising you to sell. Everyone has various goals. All I’m saying is that I expect Exxon Mobil stock to continue falling in the near future.
My opinions on Exxon Mobil Corporation are only for informational purposes. Please use this data as a starting point for your own research. That concludes my ideas on the subject; I eagerly await yours.
Featured Image: Unsplash @ justinphoto
