1. Exxon Mobil Corporation (NYSE:XOM)
Number of Mutual Funds: 50
Number of Hedge Fund Investors in Q2 2024: 92
Exxon Mobil Corporation (NYSE:XOM) is an American oil and gas company that is one of the biggest of its kind in the world. The firm has a considerable market presence and heft, as evidenced by its $341 billion trailing twelve month revenue and $31.5 billion in cash and equivalents. An oil major, Exxon Mobil Corporation (NYSE:XOM)’s hypothesis depends not only on global industrial growth and high oil prices but also on its ability to grow its productions and operations base to keep up with equally well capitalized rivals. On this front, Exxon Mobil Corporation (NYSE:XOM) has been busy beefing up its portfolio. The firm’s mega $60 billion acquisition of Pioneer Energy grows its operating footprint in America’s oil exploration hotbed, the Permian basin. Additionally, Exxon Mobil Corporation (NYSE:XOM) also has multiple projects worldwide in regions such as Guyana, Singapore, and the US slated to come online next year. These are expected to add billions to its annual earnings.
Madison Funds mentioned Exxon Mobil Corporation (NYSE:XOM) in its Q1 2024 investor letter. Here is what the fund said:
“This quarter we are highlighting Exxon Mobile (XOM) as a relative yield example in the Energy sector. XOM is a leading integrated oil and natural gas company. It has upstream assets that develop and produce oil and natural gas, along with downstream refining and chemical manufacturing assets. We believe it has attractive low-cost acreage in the Permian basin and has a sizeable growth opportunity in Guyana. Further, we think XOM has a sustainable competitive advantage due to size and scale, and its ability to integrate refining and chemical assets provides a low-cost advantage versus competitors.
Our thesis on XOM is that it will grow production volumes of oil and gas moderately over the next few years, while limiting excessive capital investment that plagued the industry from 2014-2020. Production growth will come from its 2023 acquisition of Pioneer Natural Resources, which is the largest producer in the Permian basin. XOM plans to double its Permian output by 2027, to 2 million barrels per day. Capital spending will be limited to $20-25 billion per year through 2027, which should allow for significant amounts of cash to be returned to shareholders including a $35 billion share repurchase program and continued dividend increases. Higher oil prices would provide a tailwind to our thesis but are not necessary. We think XOM can grow earnings and cash flow if oil prices remain above $60 per barrel.
The fund purchased XOM in March 2024 at $111. At the time of purchase, XOM had a dividend yield of 3.3% and a relative dividend yield of 2.4x the S&P 500, which was above its 20-year average of 1.75x. The company has an AA-rated balance sheet by Standard & Poor’s and is a Dividend Aristocrat that has raised its annual dividend 41 years in a row. XOM is one of only two Energy companies on the Dividend Aristocrat list, which requires dividend increases for 25 consecutive years.”
XOM is one of the top stocks that mutual funds bought in Q2 according to Goldman Sachs. While we acknowledge the potential of XOM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than XOM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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