In the market today.
The description of my golf game does apply to the market today. Even thought the market finished up,volume was inconsistent amongst the markets S & P volume was pretty strong and NYSE weak. The fluctuation in the dollar drove commodities down at first then most finished strong. Last night we suggested Armegeddon if the initial job claims came in weak. One of our readers sent me a note earlier n the day asking, "Well, did it?" Our answer is a nice way for me to cheat tonight so here it is.
Great question. It was good but not quite as good as expected. We had our third week of increases last week to 474,000. The expectations were 430,000. Personally I was thinking 450-460 which would have been nasty for the market. The number came in at 434,000 which was not too controversial. Behind the scenes there was some good news from the mortgage banker index because new mortgage apps we up 6.7% refis were up 9 % for a total of 8.2% for the MBA index. Last month the index went up 4.1% so it's a nice jump. The trade gap came in ugly this morning but that was driven by oil prices so it was taken in stride. The oil inventory reports came in a little high which should hurt the energy stocks, a clean example of supply and demand. Beyond that it appears to be a sideways market today. (Great for option trading if I had the time.)
In another note today we kicked the tires on a stock for one of our new readers. I will use that as well because I'd like to get to bed by the time my alarm goes off.
FYI about XOM
Exxon Mobil Corporation engages in the exploration and production of crude oil and natural gas, and manufacture of petroleum products, as well as transportation and sale of crude oil, natural gas, and petroleum products. The company manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and other specialty products. As of December 31, 2010, it operated 35,691 gross and 30,494 net operated wells. The company has operations in the United States, Canada/South America, Europe, Africa, Asia, and Australia/Oceania. Exxon Mobil Corporation was founded in 1870 and is based in Irving, Texas.
In taking a look at their fundamentals. They are cheap for the oil sector. You see the entire sector has a Price To Earnings ratio (Annual earnings per share divided by the price of the stock, a great comparative metric. In this case, expected profits a share of $8.91 cents a share divided into the current price of 81 and change gives you a multiple of P/E ratio of 9.05) of 13.1. Obviously 9.05 is cheaper than 13.1 so that makes XOM an affordable stock. Remember that the price of a stock has nothing to do with whether a stock is cheap or not. I can show you hundreds of stocks under $5.00 that are expensive when looking at the fundamentals. XOM's earning this year are up 54%. Easily achieved when the bulk of your product goes from 70.00 a barrel to 100.00 a barrel. The analysts (Geeks like me but they have real degrees and better calculators.) have a 12 month target price of $93.00 for XOM. That is what I call a 14.8% margin of safety which is nice. That is calculated by dividing the current price into the analyst estimate. I like to have margin of safety of 20% or more because analyst rarely miss by more than 20%. With a stock like XOM and hundreds of analysts covering the stock, I would accept a lower margin of safety. Considering how capital intensive their industry XOM holds very little long term debt and is relatively cash rich. Their free cash flow (what left over in the till after paying all your operations expenses) was 21 billion year ending 2010. That is a good thing and should improve in 2011. How managers uses that money really defines shareholder's value. The three things they can do to impress shareholders is to pay down debt, (they are doing that), issue and improve dividends, (they are doing that, they currently pay a $1.88 a share dividend every year. That would work out to an additional $xxxx a year deposited into your Schwab Account and you could chose to reinvest those dividends into additional share. Every year you would be buying another 14 shares or so. BTW that $1.88 is a 2.32 % yield, calculated by dividing the dividend into the current price. 2.32% is not bad return.) The third thing a company can do with free cash flow is to buy back their stock which XOM has done to the tune of 130 billion worth over the last 5 years.
That is called a fundamental analysis. Here is my brief descriptive analysis. XOM has one of the best operations in the sector. In emerging markets, NOCs or Nationally Owned Companies, XOM is usually the partner of choice. While that can create socio-economic strife occasionally (Nigeria Venezuela etc.) XOM is the player of choice. Because they are so diversified aka products and geographically, they can weather shifts in currencies, geopolitical incidents, and macro economic issues better than most. They acquired XTO a couple of years ago which plays nicely as the country shifts to clean burning natural gas. This is an important diversification that has yet to start paying profits, but will.
On the down side, many nations are becoming very protective of their natural resources so NOC contract might be a little hard to come by. When you live by the sword (high oil prices) you die by the sword (Low Oil Prices). XOM is picky when choosing exploration contracts and development contracts. That has served them well, but that makes the number of opportunities farther and fewer between. The do the majority of their revenue from North America and Europe. Both regions face some challenging fiscal scenarios at the moment. If Greece or Spain Defaults on their sovereign debt, this stock could get whacked. If the US defaults, a distinct possibility if the parliament of whores in DC don't resolve our debt ceiling issue.
Ok now after reading all of this you know exactly what to do, right.
Here is my suggestion, open a Charles Schwab One account at your nearest Schwab office which I believe is xxxxxxx.
xxxxxxx My suggestion as to what is left in the account would be to diversify a bit rather than having $X all in one stock. A good guide line is BOATS B=banking sector, O=Oil and energy sector you got that one covered) A= aerospace and industrials, T=Tech, and S is speculative plays. I would suggest 20% in each bucket. I would also suggest shooting for a return which is double the 10 year treasury note yield currently at 3.3%. You could have a nice 6-7% return with little worry.
I hope this helps.
And I hope it helps you. It is late and I don't feel like stealing photos tonight so use your imagination.
Salve Lucrum
