Has Exxon Mobil Corporation (XOM) Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing’s for sure: You’ll never discover truly great investments unless you actively look for them. Let’s discuss the ideal qualities of a perfect stock, then decide if Exxon Mobil Corporation (NYSE:XOM) fits the bill.

Exxon Mobil Corporation (NYSE:XOM)

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

1). Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it’s certainly a better sign than a stagnant top line.

2). Margins. Higher sales mean nothing if a company can’t produce profits from them. Strong margins ensure that company can turn revenue into profit.

3). Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management’s attention. Companies with strong balance sheets don’t have to worry about the distraction of debt.

4). Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.

5). Valuation. You can’t afford to pay too much for even the best companies. By using normalized figures, you can see how a stock’s simple earnings multiple fits into a longer-term context.

6). Dividends. For tangible proof of profits, a check to shareholders every three months can’t be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let’s take a closer look at ExxonMobil.

Factor What We Want to See Actual Pass or Fail?
Growth 5-year annual revenue growth > 15% 4.5% Fail
1-year revenue growth > 12% 3.8% Fail
Margins Gross margin > 35% 26.5% Fail
Net margin > 15% 10.0% Fail
Balance sheet Debt to equity < 50% 7.2% Pass
Current ratio > 1.3 1.03 Fail
Opportunities Return on equity > 15% 28.6% Pass
Valuation Normalized P/E < 20 8.89 Pass
Dividends Current yield > 2% 2.6% Pass
5-year dividend growth > 10% 9.7% Fail
Total score 4 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at ExxonMobil last year, the company has dropped a point after staying flat the previous year. Falling revenue was to blame, and the stock has only climbed about 5% over the past year.

The energy markets have been tough to navigate lately. The huge boom in unconventional production in the U.S. has started to spread around the world, yet Exxon has had trouble keeping its production volumes up. Moreover, with prices for U.S. oil and gas remaining extremely depressed compared to world benchmarks, Exxon’s U.S. activity has created challenges to growth.

In response, Exxon has used its global scope to seek out better opportunities. A potential Alaskan nat-gas pipeline and LNG joint venture with BP plc (ADR) (NYSE:BP) and ConocoPhillips (NYSE:COP) would have huge capital demands that would tax even Exxon’s massive balance sheet, but if it opens Asia’s markets to Alaskan natural gas, it could be a big win for the companies involved. But concerns persist, with Exxon walking a political tightrope in Iraq as it tries to do lucrative deals both with the Iraqi central government and the Kurdish regional government.

In its most recent earnings report, Exxon managed to post minimal growth in earnings even as revenue fell. Still, signs of early success in its relationship with Russia’s Rosneft over potential Arctic development, as well as new activities off the coasts of South Africa and Canada’s eastern coast, could eventually help replace some lost production.

For Exxon to improve, it needs to hold off Chevron Corporation (NYSE:CVX) , which has been more aggressive with its attempts to expand internationally. Right now is when oil giants are drawing important battle lines that will govern the industry for decades to come, and Exxon needs to jump in with both feet in order to defend its leadership role.

The article Has ExxonMobil Become the Perfect Stock? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Chevron.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!