A Positive Review of the Oil Industry
Barron’s features an article by Dimitra Defotis who points out the attractiveness of North American oil stocks in a rising oil price environment. Oil is one of my favorite groups since it’s a resource that is in great demand and the supply is slowly being depleted.
Regarding Exxon Mobil, held in the SMA portfolio, Defotis writes:
Exxon has about half its reserves tethered to oil, even with XTO Energy, a natural-gas producer it bought in 2009. The shares have underperformed in the past year, up only 10%. Investors aren’t paying much for Exxon’s reserves, given its significant chemical and refining businesses. At a recent $76.71, Exxon was trading at 11.6 times projected 2011 earnings of $6.62 per share. Predicting the shares could hit 90 in 2011,Barron’s has placed Exxon among its 10 favorite equities for the year (“Hear, Hear!—Our Favorite Stocks for 2011,” Jan. 3). Exxon’s $1.76 annual dividend produces a 2.3% yield.
Defotis also mentions Marathon Oil, another holding in the SMA portfolio:
Also backing away from refining is Marathon Oil (MRO). On Thursday, it agreed to spin off its refining operations, which have been a drag on earnings. The stock rose 6% on the news, to near 43. Bulls think it will be more focused on exploration and thus more profitable. Based on expected 2011 net, the combined operations trade at a multiple below 10.
Source: Barron’s
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