Adjusting to a Moving Target

The share market is liquid and volatile. Investing is like trying to hit a moving target. One has to adjust target prices either to take profit early or just hold on and be patient. This has happened to me countless number of times but most recenly with ExxonMobil. As i came across a very interesting article by Alexander Valstev on Seeking Alpha. The article analyses market value and comes up with a fair value for Exxonmobil, XOM. (found here) 

I had initially bought XOM below $75 back in 2011 right after the flash crash; with a target price of $94 for my exit strategy. After reading the article by this gentleman, i think i need to re-assess my target price to $116/share for 2 reasons mainly: 
1. Analysis done was very convincing
2. Market has just gone through re-tracement
If you followed my previous post, I strongly believe that we have not reach the climax, the top or the breaking point which will be followed by the next big crash. Oil prices have been steadily rising (Crude Oil now @ $106.70) and i suspect it will continue to rise to levels of $140-$160 a barrel by the end of this year. Therefore oil producing companies are going to benefit for the rest of 2013. 

Could there be other factors influencing this rise? most definitely yes. Political situation in the middle east isnt getting better but regardless of what happens in Syria and Iran, we should see a pick up in trade around the region and rising short term demand in Oil. 

To wrap up my price target for XOM, i have to agree with Mr. Alexander, XOM is one of the most well run companies around the world, currently undervalued. It has been trading between below by $94 initial target price because of external factors; one could even say it is because of current mood of investors: FEAR!

A look at ExxonMobil

Previously I talked a little about commodity stocks. I came across this rather interesting article on Seekingalpha.com, which prompted me to share this information with my readers.

I have been long on Oil and Gas for some time but stayed out because it was too expensive, but the 2008 market crash gave me an opportunity to get into ExxonMobil (XOM).

Anyways the original author of the article has some very interesting graphs on energy demand and population growth predictions till 2040. See below graph 1-World energy Consumption and graph 2- World population growth:

Graph 1: World Energy Consumption

Graph 2: World population growth

There is a huge correlation and we have a reason to be bullish about companies such as ExxonMobil who are extracting and supplying these commodities. Over the last 100 years, world population has increased 7 times, and it is headed towards 9 Billion by 2040. Although I may not agree totally with this figure, I still agree that population is headed higher. 

Side note: I still remember while I was studying a Sustainable Engineering module in University, world population is expected to hit 10 Billion by 2030 then start declining. This is unsustainable, because Earth’s resources cannot continue to support such a large population; famine, draught, disease and war will eventually reduce population growth to a negative.

Back to topic, ExxonMobil published their 2013 Energy Outlook , which predicts 9 billion people by 2040 for some reason. Energy demand is going to increase exponentially because of two main drivers:

1. Population growth
2. Per Capita consumption growth

For a long term investor, it’s a clear cut decision to get on the bandwagon without worrying about day to day price fluctuations. However I suggest valuating energy companies such as ExxonMobil before taking any positions. I value XOM @ $94 currently but actually wouldn’t pay $90/share right now. It’s not worth the risk for me. I would rather wait and see if I can get in @ below $65/share.

Anyway WHY EXXONMOBIL? The original author also shared these graphs below comparing shareholder distributions among energy companies:

Graph 3: Comparison of Shartholder distributions

Graph 4: Distribution yield of ExxonMobil

ExxonMobil has a whopping! distribution yield of 7% over the past 5 years. Keeping in mind increasing energy demand over the next 30 years, and relative stability of XOM as a company makes it a good investment of choice. Just look at their historical chart below:

Very rarely does it drop tremendously low. in fact it has been trading in a parallel line since 1960s. I would suggest taking advantage of every market crash and accumulating its stocks over time. But of course, dont take my word for it...do your own research first. :)

Original Article by DevonShire can be found at address below:
http://seekingalpha.com/article/1293481-exxon-mobil-sports-a-juicy-and-reliable-total-distribution-yield-over-7

Disclaimer: I have a small position in ExxonMobil (XOM) and right now I am adopting a “hold and see” attitude. However I have no plans to initiate any positions within the next 72 hrs and highly recommend you do your own research to determine your own suitable entry and exit positions.