XOM target almost there, Other US stocks to watch

Referring to my last post on "ExxonMobil gets another boost". My profit target price is still $108". I believe this is just a matter of time as XOM closed last night at $99.54, gaining almost 7% since my last article. (i.e. if you have been following).

Other US stocks to watch: Goldman Sachs (GS), Coca Cola (KO), Mondelez (MDLZ), Johnson & Johnson (JNJ), Procter & Gamble (PG). 

Keep a close eye on leadership stocks in everysector to gauge an idea of market direction. For example Goldman Sachs price movement provides excellent market direction relative to US, it works for me. This is one the hints you can take away. When a leadership stock such as GS falters, it is time to be skeptical of the market in general. For the past year it has been bullish and last night it broke past $170 barrier. Where is the next stop? $180-$185. When GS reaches, $230-$240 next year, start packing up because some of the smartest people in the world work for Goldman, they invest in their own company. When markets are heading for a downturn, when the economy cannot expand further, M&A deals stop, things start t contract. These people are the first to pull their money out. 

Okay, realistically I have gone overboard and exagerrated the above sentiments, but it is true to a certain extent. It has worked for me in the past few years, to follow Goldman Sachs. Might also work for you :)
 
 

ExxonMobil gets another boost

Important news just yesterday, Berkshire Hathaway revealed last night that it has been holding roughly 40M shares of ExxonMobil since 30th Sept. To me, it just re-affirms my position held for the past year. 
XOM last trading price at $93.23 

I have written about Exxonmobil (XOM) in the past, and my previous profit taking target was $94. However three things have made me re-evaluate my strategy for XOM in the short term. 

1. It is the year end rally, there is absolutely NO WAY i am selling before end of Dec because it is a well known fact that non-defensive stocks tend to fair well in the last quarter.
2. Positive comments from Yellen, the future FED chairman who is going to take over from Bernanke, reassures many weary investors out there.
3. Warren Buffett is the ultimate value investor. He see's ExxonMobil to be undervalued.

Therefore referring to my previous article "How much is ExxonMobil worth?" , I said the following: " true potential for XOM is $125 but only if the market sentiments remain bullish all year long".  Now, I can confidently say that it is, XOM will break the $94 resistance either tonight or by next week and head much higher by mid of 1st quarter 2014.

My profit target price has been adjusted to a conservative $108. How did i come up to this value? Its based on my own risk appetite and individual profit taking target fitting into the timeframe or which i wish to stay invested.

Below is a historical chart of their performance, highlighting places where you could have bought this fantastic company. If you are like me, not having the privilege of being born in the 50s or 60s. Its OKAY. look at the chart and pick up stocks that are undervalued. Technically, when they are hitting the historical support line (red line) and about to bounce back.

 Something interesting you will notice, there has been ups and downs but staying invested in a value stock over the long term actually does pay off, BIG time.

Final Push

I have been very quiet the past few weeks for 3 main reasons: 
1. There was little movement in the stock market
2. Been away for business trips past 2 weeks 
3. Time to relax and enjoy the double combo holiday: Hari Raya + National Day

However the timing seems to be right, everything seems to be setting up as expected. Its nearing the final push for the stock market. I expect to see a perfect bull trap being set up by 1Q 2014. Hopefully by then I will have the opportunity to divest 60% of my portfolio in preparation for the next bear market. 
(refer to previous article for chart:
http://hiddeninvestor.blogspot.sg/2013/07/hectic-june-but-quiet.html )

One fine example is ExxonMobil, I am waiting for the final push in the next half year because i expect oil prices to increase, and oil producers to benefit in the short term. Exxonmobil has the potential to break into the $100+ region, being supported by both the bullish trendline and resistance turned support at $90 region. I am hoping their final push will be fruitful for all invested in its share. But be weary of what is to follow after the next peak is reached.

Disclaimer: The above estimation of market movement/direction is solely based on my opinion. Please conduct your own research or engage in a professional financial expert before making any investment decisions.

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!

How much is ExxonMobil worth?

Came across this article on Seeking Alpha: How much is Exxon worth?

According to the author's stock analysis, ExxonMobil is now trading close to the lower boundary of its fair value range. His 5-year discounted-earnings-plus-book-value model estimates a fair value for Exxon Mobil between $86.53 to $124.18 per share. Current price of XOM is around $90. This means there is an upside potential of almost 37% to reach its fair value maximum.

Ok if you remember in my previous post on ExxonMobil, i estimated current value of XOM to be around $94. (which is based on technical analysis) I however would agree with the author that the true potential for XOM is $125 but only if the market sentiments remain bullish all year long. If we base it on long-term earnings growth expectations for an energy supplier such as Exxon, the stock is definitely undervalued. We need to have a proper timeframe for this new target to be reached. Remember, ExxonMobil benefits from its exposure to natural gas, even if the prices remain low in the near future.

Lets face the facts; the global economy is still recovering, energy demand will eventually rise, energy sector stocks should grow well over the next 2 years. But wait, we have had uneven, semi-exciting growth in the past 5 years since 2008, ALREADY. Some companies are still have low P/E values. We are nowhere near market tops. How long do you think the market will keep rising?  Thanks to the FED and BOJ, their Quantitative Easing efforts will probably prolong the market rise for a couple more years. Its very hard to say exactly how much higher XOM will keep rising, but based on fundamentals alone, XOM looks attractive even at this price. Look at the chart below, technically XOM is testing current resistance levels of $90.58.

Alot of IFs: If it breaks through 90.58 level, next stop is definitely $94, which also happens to be my target for profit taking. If however, its not able to break through to next level within by end of April, i will not be surprised to see it drop to below $90 and tade between the parallel channel down throughout May-August.   

*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.

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.

Insights On Commodity Stocks

Given the current inflationary environment, it is good to diverfisy your portfolio to include some commodity based stocks. Many companies benefit from rising commodity prices which we are observing over the past 12 years.

If you are bullish about certain commodities, you might want to purchase shares in companies that are involved in their production. But consider doing your own research into the company business structure before investing any money into it, like whether they have ownership of the commodities or provide services for the extraction and procurement of these commodities. For example Apache (APA) is involved in oil and gas exploration but they would hire other companies such as Haliburton (HAL) to drill for them. Haliburton will make money regardless of whether they find anything. However, Apache will benefit the most if they do something. Exxon Mobil (XOM) is one of the biggest player when it comes to Oil & Gas exploration, yet they would not actually compete with Apache (APA). On the other hand, Haliburton has to compete with say...Schlumberger (SLB) for drilling contracts. If oil prices were to rise, drilling companies do make more money but the competitive nature of drilling business would undermine their profits. (i.e. not making as much as they should because they compete on price and quality of service)

Lets look at another commodity, copper. Copper is one the most widely used commodity in the world, however companies producing this commodity is depending on other commodities. If oil and steel prices appreciate faster than copper prices, then a copper producing company may suffer even if copper prices rise. This is because they use oil-fueled machines built with steel to extract and ship copper. Therefore it is vital to assess the real situation before investing in commodity stocks. We need to choose which commodity companies will perform better, considering the risks properly, it will allow hedging against inflation with some capital gains.