Many moving parts – including the novel coronavirus crisis, OPEC’s moves, the overall economy, demand for air travel, and the increased popularity of electric vehicles – will affect oil stocks, including Exxon Mobil (NYSE:XOM) stock. I believe that Exxon Mobil stock will prove to be a good name for income investors over the medium term.
In recent columns, I noted that there were signs that the coronavirus outbreaks in the Sunbelt were starting to ease. Now those signs are mounting, and I am nearly certain that the surge in the region will soon be behind us.
For example, on Aug. 3, Texas reported 7,000 new cases and 114 new deaths, well off its peak of 322 deaths on July 30 and 12,500 deaths on July 15. On July 1, Arizona reported 1,030 new cases, down from its high of 4,900.
Meanwhile, in an Aug. 3 tweet, former New York Times reporter Alex Berenson noted that hospitalizations had fallen sharply in recent days and in another Aug. 3 tweet, he stated, ” The Sunbelt has won. And the effects are going to be profound.”
Berenson wasn’t referring to Exxon Mobil stock, but the end of the coronavirus surge in the Sunbelt will indeed likely have profound effects on the shares. Specifically, once the majority of media outlets begin acknowledging that the surge is over, auto travel in the region should sharply rebound, further boosting oil prices and causing Exxon’s shares to advance as a consequence.
Further, the easing of the outbreak in the Sunbelt should cause the quarantines that a number of northeastern states are imposing on those who have visited the South to end soon, That, in turn, should boost demand for air travel, further lifting oil demand and Exxon Mobil stock.
Meanwhile, as I’ve written previously, within a few months one or more vaccines for the coronavirus should become available. As a result, oil demand will likely surge tremendously towards the end of the year as pent-up travel demand is unleashed.
Even now, increased travel, spurred by the reduced fear of the coronavirus I had previously predicted, along with rebounding industrial demand, have helped increased demand for oil. In fact, global oil demand ran about 2 million barrels per day ahead of oil supply in July. That discrepancy is certainly positive for Exxon and Exxon Mobil stock.
In conjunction with Russia, OPEC reportedly plans to increase oil output by a combined 1.5 million barrels per day. Given the fact that demand is outpacing supply by 2 million, along with largely positive developments vis-a-vis the pandemic in the U.S., Europe and China, the supply increase should not prevent oil prices from rising over the next month.
Threats to Exxon Mobil Stock
In the shorter term, there’s a possibility that the coronavirus will worsen between the time when the weather gets colder and a vaccine is ready. The recent flare-up in Australia, where it’s currently winter, and the fact that there was a strong second wave in the winter during the Hong Kong flu pandemic of 1968 make me worry about this possibility.
Still, since a vaccine is likely to be ready or nearly ready when the second wave of the coronavirus hits, stocks and oil prices may not take too much of a hit if and when such an event occurs.
Over the longer term, the rapidly increasing popularity of electric cars will pose a potent threat to oil stocks, including Exxon Mobil stock. But EVs’ market share is not expected to grow by leaps and bounds anytime soon. “By 2025, all-electric vehicles will have a 16% market share in China and Europe and 7% in North America, the world’s three largest car markets,” research firm IHS Markit estimated.
The Bottom Line on Exxon Mobil Stock
Exxon’s decision to maintain its $3.48 per share dividend, which currently equates to a yield of 8.2%, makes the shares attractive for income investors who are not completely averse to risk. Exxon’s decision also indicates that the company is fairly confident in its outlook and financial position.
Given those conclusions and the company’s near-term drivers, I recommend that income investors who are not risk-averse buy a small amount of Exxon Mobil stock now. If the shares do pull back during a second wave of the coronavirus, I suggest buying more of the shares on weakness.
I would sell the stock during the likely economic surge in early 2021. Unloading the stock at that point would likely protect investors for many meaningful declines of demand for gasoline-powered vehicles in the U.S.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Roku, solar stocks and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he did not own shares of any of the aforementioned stocks.