XOM @ The Fool

Tyler Crowe

Fool Contributor

I Finally Took My Own Advice and Bought Shares of ExxonMobil

A discussion of why I added ExxonMobil to my portfolio may help you in your investing decisions.

SOURCE: EXXONMOBIL INVESTOR PRESENTATION.

There has always been a small part of me that has felt guilty for not backing up every stock recommendation and investing advice with my own money. The thinking for me is that if someone out there might be making what could be a life-changing financial decision on something that I write or say, then I should have some skin in the game as well.

No other company made me feel that twinge of guilt harder than ExxonMobil (NYSE:XOM).

For several months, I have thought of it as one of a few go-to stocks in the oil and gas industry. But because of the typical everyday things that life throws at us, I wasn't able to scrape together enough money to open a position I thought was enough to justify things like trading fees and whatnot.

Well, I finally put my money where my mouth is and bought shares of the company I have espoused the virtues of owning. A little less than a year ago, I pretty much laid out the reasons why I thought this was the stock to own when compared to its peers, but I thought I would share with you the changes I saw over this time and how they influenced my personal investing decision. I hope that this will help you in your own decision-making.

What has changed
The obvious thing that has changed in the entire oil-and-gas landscape is the big downfall of oil prices, which, as many would expect, has hampered the profitability of just about every company that produces oil and gas. ExxonMobil certainly hasn't been immune to the changes we've seen, but it has held up relatively well, all things considered. Margins and returns have declined, but not by much. In fact, its EBITDA margin of 14.7% is only 1.6 percentage points lower than this time last year.

The one thing that could really raise some red flags for investors is the fact that the company's free cash flow has evaporated. This past quarter was the first time in over 20 years that the company has seen its levered free cash flow margin run negative for two consecutive quarters.

It is easy to see why this could be a major concern. After all, the reason that shares of ExxonMobil have been so lucrative to own for years at a time is that it returns a ton of free cash to shareholders in the form of dividends and share repurchases. If there is not cash to be had, that can make the value proposition for ExxonMobil go up in flames very, very fast. 

If we look deeper, though, this concern may be slightly overblown. The biggest reason for cash flow to swing into negative territory is a $7.5 billion change in working capital. Basically, the company reduced its current liabilities at a much faster rate than its current assets. By contrast, the two companies that did move into free cash flow-positive territory over the past two quarters -- Royal Dutch Shell and BP -- saw working capital swing in the other direction, giving them a more favorable cash position. 

The other reason I'm not too concerned with that decline in free cash flow is that ExxonMobil's cash from operations still exceeds its capital expenditures by a pretty wide margin -- about $5.5 billion. As long as it's still cranking out cash from operations in excess of its capital expenditures, I'm not going to fret too much about a couple of quarters of negative free cash flow from working capital changes. 

What hasn't changed
While there has been some jostling among the five largest oil and gas companies in terms of production growth outlooks and margins, ExxonMobil has held its production guidance out to 2017 steady. This shouldn't be too much of a surprise since much of the production growth over this time period is coming from projects that are already on line and are ramping up to full capacity, or are ones that began construction a while ago and aren't going to be shut down today because of a drop in oil prices. The one small, interesting caveat is that the company still plans on growing its one segment that could be curtailed rather quickly: U.S. shale oil.

SOURCE: EXXONMOBIL INVESTOR PRESENTATION.

This should be a good sign not only for ExxonMobil but also for the entire U.S. shale production industry as a whole. It means that even though the development cycle for shale oil is short and could be shut down to preserve capital, ExxonMobil still sees favorable economics from shale wells even at today's prices.

The other thing that hasn't changed that keeps ExxonMobil above its peers is that it is still far and away the leader when it comes to profitability. ExxonMobil still maintains a pretty comfortable lead over its peers based on returns on both equity and capital employed. 

SOURCE: EXXONMOBIL INVESTOR PRESENTATION.

Company	Return on Equity (LTM)
ExxonMobil	16.3%
Royal Dutch Shell	8.4%
BP	2.5%
Chevron	11.3%
Total	3.2%

SOURCE: S&P CAPITAL IQ.

It will take a pretty monumental effort for another one of these companies to make the leap over ExxonMobil in this regard. One could argue that oil prices would help, but keep in mind that any gain that one of these companies experiences from oil and gas prices, so do the other four to a certain degree.

What is even more surprising about those return-on-equity numbers is that of all the companies listed, ExxonMobil has the lowest amount of debt as a percentage of its capital structure. Typically, a company that juices on debt can crank out slightly better returns on equity. But ExxonMobil has turned that traditional thinking on its head because it has repurchased and retired so many of its shares that it has drastically reduced the book value of the company's equity.  

As long as the company can continue to generate best-in-class returns while still having some cash from operations left over after capital expenditures, I still see ExxonMobil as the best pick among the big oil giants.

Why now?
Several months ago, there wasn't a whole lot to get excited about when looking at the valuation of ExxonMobil's or any other integrated major's stock, and if you were to look at traditional valuation metrics such as price-to-earnings you wouldn't see a huge change from several months ago. Actually, using any income statement valuation method, ExxonMobil's shares actually trade at a slight premium to its average valuation over the past 10 years. 

The metric that stands out today, though, and possibly the one that should be given the most attention, is price-to-tangible book value. The issue with using income statement valuations like price-to-earnings and price-to-sales for a company in commodities is that they are almost entirely a reflection of commodity prices and not as indicative of the value of the underlying assets owned by the company, whereas price-to-tangible book value is more reflective of the value in the company's assets that generate those sales and earnings no matter what the price environment is. 

Today, ExxonMobil trades at 2.03 times tangible book value, a decent discount to its 10-year average valuation of 2.9 times tangible book. Also, keep in mind that ExxonMobil's tangible book value is slightly artificially inflated because all those repurchased shares lower the book value of equity. 

While I would not be completely surprised if its price-to-tangible-book value were to decrease, it appears that shares of ExxonMobil today are at a pretty decent price in relation to the underlying assets owned by the business, and if oil and gas prices were to rise, those underlying assets will translate to better earnings power. 

What a Fool believes
Admittedly, a small part of the reason I bought this stock is because of my slight aversion to making recommendations of stocks which I do not own. However, it was not the driving factor for this purchase. I really do like this stock, and I have wanted to make it a part of my portfolio.

While the decline in oil prices has put a pretty good dent in the earnings power at ExxonMobil for the time being, it hasn't really made any structural changes to the company. After all, we're talking about a company that has been around for more than a hundred years and has gone through major ups and downs in the commodity cycle before, and I'm investing my money thinking that it will be able to emerge from this downward price cycle in a great position to profit, as it has done so many times before. 

B, A, BA ... @ INVESTOPEDIA about TRIN

DEFINITION of 'Arms Index - TRIN'

A technical analysis indicator that compares advancing and declining stock issues and trading volume as an indicator of overall market sentiment. The Arms Index, or TRIN (Traders Index), is used as a predictor of future price movements in the market primarily on an intraday basis.


The Arms index is calculated as follows:

TRIN = (advancing issues/declining issues)(volume of advancing issues/
volume of declining issues)

INVESTOPEDIA EXPLAINS 'Arms Index - TRIN'

An Arms Index value above one is bearish, a value below one is bullish and a value of one indicates a balanced market. Traders look not only at the value of the index, but also at how it changes throughout the day. Traders look for extremes in the index value for signs that the market may soon change directions. The Arm's Index was invented by Richard W. Arms, Jr. in 1967.

Read more: http://www.investopedia.com/terms/a/arms.asp#ixzz3ebZQA3A4
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By Jeff Reeves @ MarketWatch

Opinion: 5 cheap stocks that aren’t value investing traps

Published: Apr 17, 2015 6:01 a.m. ET

While sentiment matters and headlines can change, there are few substitutes for good analysis that compares investment options objectively based on numbers and not narrative.

Lately, I’ve been looking for stocks that offer good value in a market that appears increasingly stretched. And I’ve found five stocks that look cheap — but unlike some of the dogs that have crashed thanks to failure, these picks are decidedly not value traps and have a lot to offer.

Each of these stocks trades at a lower earnings multiple than the market at large — which would be a forward P/E of 17.5 for the S&P 500 SPX, -1.24%  and 19.2 for the Nasdaq COMP, -1.84% These stocks also can be had at an attractive price/sales ratio, at least compared with the 1.8 reading for the S&P.

On top of that, I looked for stability in the form of plenty of cash on the books and a sustainable dividend as a hedge when the market is rocky. The result is a list of five surprising value stocks that look like bargains. Here they are, with the numbers to show my work:

1. Valero Energy

·       Market Cap: $29.6 billion

·       Cash and Investments: $3.7 billion million or, or 13% of market value

·       Price/sales: 0.42 based on a projected $71.2 billion in FY2015 sales

·       P/E ratio: 8.7 based on projected EPS of $6.60 in FY2015

·       Dividend Yield: 2.8%

It seems crazy to chase an energy stock in this environment. But while Valero Energy Corporation VLO, -2.56%   has underperformed in the last year or so, the stock has really been in a groove since its January lows, gaining close to 30% in just three months.

That’s because, in the words of Ben Levisohn at Barron’s, Valero “knows how to take lemons and make lemonade” and posted robust fourth-quarter earnings on strong product margins. Given this recent earnings success and extremely attractive valuation metrics, Valero could be worth a look before its first-quarter numbers hit at the end of the month.

2. Lexmark International Inc.

·       Market Cap: $2.7 billion

·       Cash and Investments: $934 million or, or 35% of market value

·       Price/sales: 0.75 based on a projected $3.6 billion in FY2015 sales

·       P/E ratio: 12.1 based on projected EPS of $3.61 in FY2015

·       Dividend Yield: 3.3%

Lexmark International Inc. LXK, -1.38%   is hardly a sexy name, and is most recognizable to investors from its laser printers. Admittedly, Lexmark stock has seen stagnant revenue in recent years, but profits are quite strong and the company is sitting on a nice pile of cash, with good operating cash flow.

You may be surprised to see that the stock is actually up almost 6% this year, and is up 90% since January 2013 vs. just 50% or so for the S&P 500 in the same period. Take this recent strength with a 3.3% dividend and you’ve got reasons to look at Lexmark. That dividend of 36 cents per share quarterly is sustainable at less than 40% of this year’s projected earnings, and should provide stability no matter what happens in 2015.

3. Cooper Tire & Rubber Co.

·       Market Cap: $2.4 billion

·       Cash and Investments: $552 million or, or 23% of market value

·       Price/sales: 0.79 based on a projected $3.1 billion in FY2015 sales

·       P/E ratio: 13.7 based on projected EPS of $3.06 in FY2015

·       Dividend Yield: 0.1%

You’re not going to get much income from Cooper Tire & Rubber Co. CTB, -1.98%   since the stock pays only a nominal dividend of 10.5 cents quarterly.  However, the company’s stock is attractive on a number of other valuation metrics and has a solid balance sheet. And the fact that vehicle sales are expected to be quite strong in 2015, hitting 17 million and marking the highest level since 2005 according to some estimates, bodes well for Cooper.

You can’t argue with the tape — Cooper stock is up 21% year-to-date in 2015 against a flat market, and the charts continue to look bullish as Cooper approaches its May earnings report.

4. R.R. Donnelley & Sons  

·       Market Cap: $4.0 billion

·       Cash and Investments: $528 million or, or 13% of market value

·       Price/sales: 0.34 based on a projected $11.8 billion in FY2015 sales

·       P/E ratio: 12.8 based on projected EPS of $1.57 in FY2015

·       Dividend Yield: 5.2%

R.R. Donnelley & Sons RRD, -2.72%   is a communications and public relations firm that has been charging higher in the last few years. Since January 2013, shares are up 126% vs. 50% or so for the S&P 500, and shares have tacked on 20% year-to-date.

Still, the valuation metrics are great despite this run, with low multiples on both sales and earnings. Furthermore, the juicy 26-cent dividend each quarter adds up to a hefty 5.2% yield. Though the payout is a majority of total earnings — at a 66% payout ratio — the company can comfortably sustain that dividend, especially considering it has more than $500 million on hand in cash and investments.

5. Emcor Group

·       Market Cap: $3.0 billion

·       Cash and Investments: $432 million or, or 14% of market value

·       Price/sales: 0.45 based on a projected $6.6 billion in FY2015 sales

·       P/E ratio: 16.8 based on projected EPS of $2.81 in FY2015

·       Dividend Yield: 0.7%

Electrical and mechanical construction company Emcor Group EME, -3.69%   is focused on nuts-and-bolts building and industrial services. But given the continued improvement in the U.S. economy, Emcor has been doing quite well lately with shares up 6% so far this year, outperforming the S&P 500 three-fold even after a mild earnings miss in its fourth-quarter report.

Emcor reports earnings next at the end of April. Though revenue has been relatively flat lately, the company has seen earnings growth in four of the last five quarters on a year-over-year basis. If Emcor can prove the miss in January was an outlier, it should power higher — and given the stock’s uptrend recently, Wall Street seems to think that’s a highly likely scenario.

About Mining Stocks @ The Fool

4 Mining Stocks Trading At Bargain Prices: Centamin PLC, Anglo American plc, Antofagasta plc And Lonmin Plc

Photo: Roy Luck. Cropped. Licence: https://creativecommons.org/licenses/by/2.0/deed.en

By Peter Stephens - Tuesday, 14 April, 2015

2015 has been a disappointing year for the mining sector, with the majority of its incumbents underperforming the FTSE 100 since the turn of the year. For example, Lonmin(LSE: LMI) and Anglo American (LSE: AAL) (NASDAQOTH: AAUKY.US) are heavily in the red this year, having fallen by 27% and 15% respectively, while Antofagasta (LSE ANTO) andCentamin (LSE: CEY) are well behind the FTSE 100’s 7% gain, with their share prices falling by 3% and rising by 2% respectively.

However, this could be the perfect time to buy them, with all four companies trading at very appealing share prices.

Growth Potential

While 2015 is expected to be a mixed bag for the four companies, next year is forecast to be much brighter. Certainly, commodity prices may fail to stabilise or improve, but efficiencies and rationalisation are set to have a considerable impact on the wider sector, thereby causing its outlook for 2016 to be relatively strong.

For example, Centamin is expected to see its bottom line rise by 28% next year, which is roughly four times the growth rate of the FTSE 100. Certainly, its forecasts may change somewhat between now and then, but its current valuation appears to provide investors in the stock with a very wide margin of safety. This is evidenced by its price to earnings (P/E) ratio of just 11.1, which when combined with its growth potential equates to a price to earnings growth (PEG) ratio of just 0.3. As such, Centamin’s share price could move much higher.

It’s a similar story with the likes of Antofagasta, Anglo American and Lonmin. Their bottom lines are set to rise by 29%, 35% and 380% respectively between 2015 and 2016. This puts them on PEG ratios of just 0.5, 0.3 and 0.2 respectively, all of which indicate that considerable capital gains are on offer and, perhaps more importantly, that disappointment on the earnings front is being priced in. In other words, wide margins of safety are on offer right now.

Risks

Clearly, all four companies are at risk from price weakness in their chosen commodity markets. This could cause write downs to their asset base, which would clearly impact heavily on their bottom lines and valuations moving forward. However, the outlook for the commodity markets is significantly better than has been its performance in recent years, with an improving global economy and the potential for Chinese stimulus likely to mean that pricing is more appealing in future.

And, even if commodity prices do weaken, the likes of Centamin, Antofagasta, Anglo American and Lonmin trade on such appealing valuations that, for long term investors, it makes sense to buy them now due to their very favourable risk/reward profiles.

Of course, they aren't the only companies that could boost your portfolio returns. However, finding the best stocks at the lowest prices can be challenging when work and other commitments get in the way.

Next ...

By Peter Stephens - Wednesday, 8 April, 2015

The last year has been incredibly difficult for the mining sector, with commodity price falls hurting the bottom lines of most of its incumbents. And, almost inevitably, the share prices of most mining stocks have fallen dramatically, with Rio Tinto (LSE: RIO) (NYSE: RIO.US), for instance, seeing its share price fall by 14% since April last year.

However, the tide could be turning for the sector, as evidenced by a recent surge in investor sentiment for Rio Tinto and, perhaps more acutely, for Centamin (LSE: CEY), which has seen its share price rise by 14% in the last few weeks alone. And, looking ahead, there could be more capital gains to come for both companies.

A Return To Growth

Of course, for Rio Tinto and Centamin, things are set to get worse before they get better. In Rio Tinto’s case, its bottom line is expected to fall by 36% this year as a 10-year low for iron ore continues to impact on its bottom line. However, the efficiency programmes being undertaken by the company, as well as increased production, mean that its earnings are set to rise by 22% next year. This puts Rio Tinto on a price to earnings growth (PEG) ratio of just 0.4, which indicates that its share price could move significantly higher.

Meanwhile, it’s a similar story for Centamin. Its net profit is due to drop by 37% this year, followed by a rise of 29% next year. Clearly, investors have started to look at its medium-term future, but even though its shares have risen strongly recently, Centamin still trades on a PEG ratio of just 0.3. This shows that there could be further gains ahead, with the company offering a very wide margin of safety at the present time.

Income Potential

In addition to their growth prospects, Rio Tinto and Centamin also offer excellent income prospects. As well as yielding 5.3% and 2.6% respectively at the present time, Rio Tinto and Centamin both have scope to increase dividends per share at a rapid rate. That’s because both companies have relatively modest payout ratios, which when combined with their stunning growth prospects means that their dividend yields could move much, much higher. For example, Rio Tinto has a payout ratio of 62%, while Centamin’s is even lower at 27%, thereby making them companies with significant dividend growth potential.

Looking Ahead

So, while recent months have been very challenging for investors in mining stocks, the future appears to be much brighter. And, with their combination of income, growth and value appeal, Rio Tinto and Centamin appear to be two stocks that are well worth buying at the present time.

Of course, finding stocks from any sector that are worth adding to your portfolio is a tough task, which is why the analysts at The Motley Fool have written a free and without obligation guide called 10 Steps To Making A Million In The Market.

It's a simple and straightforward guide that could make a real difference to your portfolio returns. As such, 2015 could prove to be an even better year than you had thought possible.

Next ...

Russia, Crimea, Ukraine, Israel, Iraq, Syria, Africa, ... ? an other world ...

Market expert thinks bull is just getting warmed up 
Analysis: Technical analyst Craig Johnson thinks stocks could rise for years, reports Howard Gold.

HOWARD GOLD'S NO-NONSENSE INVESTING

Aug. 7, 2014, 10:00 a.m. EDT

This market expert sees big upside for stocks

Insight: Bull market is just beginning, says Johnson

By Howard Gold, MarketWatch

This article has been republished to correct the headline. An earlier version incorrectly said that Johnson was predicting a 70% gain for stocks.

Shutterstock.com

I couldn’t have picked a worse day to interview Craig Johnson, longtime bullish technical analyst for Piper Jaffray.

It was last Thursday, when the Dow Jones Industrial Average lost 317 points, and fears about Ukraine, Gaza, and Argentina’s default on its debt were paramount.

When we spoke late that afternoon, Johnson sounded a bit harried but otherwise unfazed. Just two days before, his team had published a new report, “2K and Beyond/ All Systems Go.”  And on Thursday he wasn’t giving any ground.

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True, the S&P 500 SPX -0.25%  had just broken below its 50-day moving average, signifying short-term weakness. (It has since gone even lower.) But that already happened twice this year, in February and May, and stocks kept moving higher, Johnson said.

“These sell-offs burn themselves out,” he added.

So, until there’s a deeper correction that drives the S&P below longer-term support levels around 1850, Johnson is giving this market the benefit of the doubt.

“The secular bull market is just starting,” he declared.

And not just any secular bull market, he said, but “a big, long, powerful secular bull market” that could last “multiple years in length and [earn] a multiple of your money.”

Raging bull

If you’re ready to throw rotten tomatoes at your computer screen, you’re not alone. Two years ago, Johnson  was in a small, besieged bullish fraternity along with Laszlo Birinyi,Jim Stack, James Paulsen of Wells Capital Management, and fellow technician Mark Arbeter, then of S&P.

Clients called him crazy, and when this column first wrote about Johnson’s 2000 S&P call, the comments were downright contemptuous.

And yet, here we are two years later, and the S&P peaked at 1987.98 in mid-July. Johnson predicted the index would end 2013 at 1850. It closed at 1848.36.

Johnson may well have been lucky, but it was an astonishing call by any measure. The few investors who listened to him rather than to the gold bugs, hyperinflationists anddoom-and-gloomers of every stripe have made a boatload of money. The S&P is up more than 40% since then.

But Johnson’s not done. One reason he thinks the market is heading a lot higher for a lot longer is that pessimism is still pervasive.

S&P 500 INDEX 

1.920,24 
+0,00% | +0,03
 06/08/2014 22:10

 “People are scared. They still hate this market. They think it’s all manipulated by the Fed,” he said.

Trading volume is still weak, he said, and “it doesn’t feel like there’s a lot of individual investors participating today.”

That’s actually true: The small number of hyperactive traders at discount brokerage firms obscure the bigger picture that the vast majority of individuals are still too spooked to buy stocks. Study after study confirms that. Institutions aren’t exactly euphoric, either.

If Johnson is right, stocks will rally for a long time. He thinks we’re in the kind of secular (extreme long-term) bull market we saw in both the 1950s and the 1980s. Each of those runs lasted much longer than a decade.

“The secular bull market began in March of 2009 and was finally confirmed when we went through the 2000 and 2007 highs,” Johnson explained.

That “confirmation” occurred in March 2013, when the S&P 500 broke above 1550, its previous all-time peak.

“When you break out of big bases, the market accelerates,” he explained, and indeed, the S&P has gained as much as 28% since hitting that magic number.

Comparing that with 1952 and 1982, when the market also surpassed its previous high (in price only, not including dividends), Johnson said, “If history does rhyme, [this bull market] would last 10 years from 2013.”

“Investors made five times their money” after 1952 and 15 times their money from 1982 to 2000, he said.

Stocks for the long run

So, if you take March 2009 as your starting point and multiply by five, that would get us to S&P 3400 before it’s all over — about 70% higher than current levels. Yet over a decade, that’s a compound annual growth rate of less than 6% a year, which is not outlandish. (That’s just hypothetical, by the way: Johnson hasn’t published any official forecast beyond 2100 by the end of 2014. I’m not predicting that, either.)

But the continuation of the bull market, of course, depends on the economy and earnings.  “Things are definitely getting better with the economy,” Johnson said. He thinks rising interest rates in years to come could actually facilitate a switch into stocks from bonds.

And since the price/earnings multiple of the S&P already has expanded, “we need earnings to come through.” So far this quarter, almost 70% of S&P companies that have reported earnings have beaten Wall Street estimates.

Still, Johnson conceded, “we’re overdue for a true correction. I would have thought it would have happened by now.” (So would I, and last week, I recommended that readerstrim some of their positions to reduce short-term risk.)

Johnson’s definitely not advising people to dump stocks. In fact, he thinks a selloff is a buying opportunity. 

He says investing in big-blue chip U.S. stocks is the way to go for most people. “Why not be a buy-and-hold investor?” he asked.

Why not indeed? If he’s right and this bull market has years to go, it would be a great boon for retiring baby boomers and others who were smart enough to keep at least some — but certainly not all — of their money in stocks, while everyone else was busy fighting the Fed.

Howard R. Gold is a MarketWatch columnist and founder and editor of GoldenEgg Investing , which offers simple, low-cost, low-risk retirement investing plans. Follow him on Twitter @howardrgold.

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