Author Topic: XOM - Exxon  (Read 6145 times)

ratiman

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XOM - Exxon
« on: March 31, 2016, 02:19:59 PM »
Last year Exxon made $6.5B of free cash flow and currently trades at over $350B, for a trailing free cash flow yield below 2%. If that isn't enough to get value investors excited, it also replaced 2/3 of reserves and borrowed $9B to pay the $12B dividend.  The $3 dividend is probably propping up the stock.

Somebody mentioned that Exxon was trading at a record ratio to WTI, so I decided to take a look at that. The ratio got really high back in the late 90s because oil was so cheap. Today it's at an extreme probably through some combination of low oil and a high stock price. Even if oil were to return to $55, the ratio would still be over 1.5 vs a historical range between .70 and 1.



thepupil

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Re: XOM - Exxon
« Reply #1 on: March 31, 2016, 02:46:37 PM »
I'm short at an average cost of $79 or so. Simplistic and dumb thesis is that it's priced for a recovery that may or may not happen and I own other stuff with some oily-ness that has a lot more upside if a big time recovery does happen.

 I'm sure someone may argue that they'll make a great acquisition, that oil has to go up, that they are guaranteed to survive which isn't true of almost any other long in the space, and I would  agree with those points. just thought that it was asymmetric. So far it's worked, XOM is up about 5% and other stuff I was buying at the time (namely FOR, texas RE and some oil assets I thought you were getting for free) is up 30-50%. Maybe that can be "explained by the differences in beta" or the massive difference in quality , maybe that's a little luck, but I continue to think XOM is a poor risk / reward as a long and an okay, albeit lazy, short. <--It's a lazy short for me at least, I'm sure there are some people who model every project and come to similar conclusions (like Chanos).  I don't mean to imply that that is a sane pair trade at all btw, because it isn't.  Also when I was shorting it, everything US industrial / economic growth related was dropping like panties on prom night and XOM is in part chemicals business.

I honestly have nothing to add and didn't bother to open an annual report. Just said  $8-$9 EPS in $100 oil the last time around, let's bump that up to $10 for fun, throw a 12X multiple on it and $120 = upside case, only 50% for a massive move in oil = no upside leverage, but if oil stays kind of down here it's like 10 to infinity multiple points above historical average multiple. I could be wrong and it isn't a big position. it's a nice short in that you can hedge it cheaply if you really want (with OTM calls), it is impossible to get taken out, very low margin requirements and oceans of liquidity etc.

I would love to hear a long case at this price. I would think it would revolve around oil and gas prices going up and a a lot of projects that have a lot of upfront capex coming online.
« Last Edit: March 31, 2016, 03:04:35 PM by thepupil »

Libs

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Re: XOM - Exxon
« Reply #2 on: March 31, 2016, 03:11:09 PM »
I would argue Chevron is even worse off. Fewer downstream assets, negative FCF, borrowing to pay the dividend. What a mess. LNG is not going to save them either.
I'm short Chevron and also own Jan 2018 puts. Oddly, I feel like time is on my side with the puts: every day oil stays below $60 is a day closer to the market realizing CVX is not worth $170B.
What's the term everyone is using? Dividend bubble? That's what I think these are.
My username is not a political statement.....and I'm too lazy to change it.

ratiman

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Re: XOM - Exxon
« Reply #3 on: March 31, 2016, 03:18:23 PM »
$100B could be sliced off the market cap and the stock would still not be cheap. But it's hard to argue with success, stock has been a huge winner over the years for a lot ordinary investors. The long case is that it might not go up, but it won't go down, there are too many loyal income investors out there. 

Yeah, Chevron is even more out of whack with WTI.
« Last Edit: March 31, 2016, 03:21:33 PM by ratiman »

ratiman

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Re: XOM - Exxon
« Reply #4 on: April 04, 2016, 12:34:11 PM »
The amount of ordinary investor interest in Chevron is huge. Seeking Alpha gets a new article every few days:

Chevron To Break Through $100 Shortly
Chevron: Stay Long For More Upside
More Reasons Why Chevron Will Continue Turning Around
Chevron - This Turnaround Is Here To Stay
Chevron: Gorgon LNG, Mission Accomplished
Oil To Break Out: Adding Chevron
Don't Sell Chevron

That's just the most recent articles. People are pretty excited about Chevron. Meanwhile, oil is at $35.

Picasso

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Re: XOM - Exxon
« Reply #5 on: April 04, 2016, 01:00:10 PM »
The amount of ordinary investor interest in Chevron is huge. Seeking Alpha gets a new article every few days:

Chevron To Break Through $100 Shortly
Chevron: Stay Long For More Upside
More Reasons Why Chevron Will Continue Turning Around
Chevron - This Turnaround Is Here To Stay
Chevron: Gorgon LNG, Mission Accomplished
Oil To Break Out: Adding Chevron
Don't Sell Chevron

That's just the most recent articles. People are pretty excited about Chevron. Meanwhile, oil is at $35.

Probably one of the best signs I've seen to short that stock.  Don't even look at the valuation or borrow rates.  Just short it. 

Libs

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Re: XOM - Exxon
« Reply #6 on: April 05, 2016, 11:26:24 AM »
The amount of ordinary investor interest in Chevron is huge. Seeking Alpha gets a new article every few days:

Chevron To Break Through $100 Shortly
Chevron: Stay Long For More Upside
More Reasons Why Chevron Will Continue Turning Around
Chevron - This Turnaround Is Here To Stay
Chevron: Gorgon LNG, Mission Accomplished
Oil To Break Out: Adding Chevron
Don't Sell Chevron

That's just the most recent articles. People are pretty excited about Chevron. Meanwhile, oil is at $35.

Probably one of the best signs I've seen to short that stock.  Don't even look at the valuation or borrow rates.  Just short it.

Sarcasm duly noted. As I see it, many here are taking flyers on small energy plays that could go up 3X if oil goes to $60. That makes some sense. But CVX longs need $60 oil to make minor returns from here. That makes no sense, and I'm happy to be on the other side of that bet.
I don't need to do a lot of math to know where CVX will be in a year if oil is still at $35.
My username is not a political statement.....and I'm too lazy to change it.

Picasso

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Re: XOM - Exxon
« Reply #7 on: April 05, 2016, 11:29:09 AM »
I'm not being sarcastic.  Sorry if it came off that way.  I just think that kind of retail investor Seeking Alpha headline flow screams short me.  You don't even need to run any fancy models. 

Libs

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Re: XOM - Exxon
« Reply #8 on: April 05, 2016, 12:05:14 PM »
I'm not being sarcastic.  Sorry if it came off that way.  I just think that kind of retail investor Seeking Alpha headline flow screams short me.  You don't even need to run any fancy models.

Sorry Picasso.
My username is not a political statement.....and I'm too lazy to change it.

Pelagic

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Re: XOM - Exxon
« Reply #9 on: April 05, 2016, 01:15:47 PM »
I'm not being sarcastic.  Sorry if it came off that way.  I just think that kind of retail investor Seeking Alpha headline flow screams short me.  You don't even need to run any fancy models.

Yes and no. You have to remember how SA authors are incentivized. A little over 150,000 people follow CVX, if an author is going to spend an hour or two writing an article, it usually makes sense to write it on a highly followed company. CVX is a "safe" bet for authors since a lot of the analysis in the article relies on something no one can really predict - oil prices, and they can parrot their favorite oil bulls liberally in the article.

From the Chevron: Gorgon LNG, Mission Accomplished (I picked it since it had the most comments)
Emailed to: 510,826 people who get Investing Ideas daily and 246,618 people who get Energy Investing daily.
Author payment: $35 + $0.01/page view.

Authors write to make money, not because they're necessarily highly opinionated about the stock and reading a directional bias from articles aimed at retail investors is a bit of a stretch IMO. Now the comments, they're a different story, I'm continually amazed at how emotional some people get about investing.