Exxon Mobil (XOM) has been taken down this month. Economic news is pointing towards a 50% chance of a recession. Recessions mean demand for energy comes down, as should energy prices. Oil prices are in decline and investors have been dumping Energy stocks to the point they are great buys for buy-and-hold investors. But is the recession is just starting, you might be holding energy stocks for a while to make it worth the investment.
Looking at the Earnings Table, XOM beat the street bu 38 cents last month but Annual Profit Estimates declined. I don’t think you can get a serious rally in a stock unless estimates are rising — unless the P/E is really low, which XOM’s is (9).
Quarterly estimates show solid growth next quarter, but growth looks to really slow in 2012. These estimates are also declining so you can’t be certain of annual Estimates.
Fair Value
With a recession 50/50, XOM might not get a fair P/E of 12. So I think in the near term a 10 P/E is possible. At the current. $72 price, upside is solid for conservative investors. Current yield on XOM is 2.6%.
Bottom Line
The flattening economy is causing XOM’s profits to come down. Still, the stock’s P/E is only 8 right now, which is cheap for this Blue Chip stock.
I think the market’s decline has been overdone. Its a little silly to take these stocks down this far. But there’s some people panicking right now and institutional investors are shuffling their portfolios (causing 400 points swings in the Dow). Exxon stock is a perfect example of the market we are in: stocks undervalued and estimates declining a bit.
