The sheer size of ExxonMobil is astounding. It is one of the largest companies in the world in terms of revenues and the largest non-government-owned oil and gas company in the world with an output accounting for 3 percent of the global oil production and 2 percent of the global energy requirement. It also has one of the largest market capitalizations and has been considered the largest of the Big Oil companies in both production output and market value. This article explores and discusses the advantages and disadvantages of ExxonMobil stock.
Advantages and Disadvantages of Investing in ExxonMobil Stock: Pumping Profit or Dumping Losses
Pros: Advantages of ExxonMobil Stock
ExxonMobil is also the largest investor-owned oil and gas company in the world and one of the largest publicly-traded companies in terms of earnings. The company is popular among investors because of its position in the oil and gas industry and the greater business landscape.
Some investors and analysts have noted its resilience against swings in the prices of fossil fuel in the global market and the highs and lows of the economic cycle. It has a proven track record of weathering economic downturns or volatile oil and gas markets.
The company has also invested heavily in expanding its business. It has ongoing investments aimed at growing its production output while also looking for related ventures to maximize its earnings potential. Below are the specific advantages of ExxonMobil stock:
• Large-Cap Stock Advantages: ExxonMobil is a large-cap stock. Take note that purchasing and investing in large-cap stocks has notable benefits over mid-cap stocks and small-cap stocks. These include demonstrated stability, an established business model, strong management capabilities and corporate governance, availability of market information, and lower liquidity risk.
• Defensive Stock Advantages: Another advantage of ExxonMobil stock is that it is also a defensive stock. Defensive stocks or companies operating in defensive sectors and industries are characterized by their resilience from economic downturns or specific slumps in the stock market. Buying and holding defensive stocks are one of the core principles of a defensive investing strategy.
• Historical Dividend Payouts: The company has a strong history of consistent dividend payouts to its common stock. This is an indicator of good financial performance because common stockholders have a lower claim to earnings and profits compared to bondholders and creditors. Investing in ExxonMobil stock is ideal for investors seeking passive income or so-called income-seeking investors.
• Diversified Business Interest: ExxonMobil has multiple income streams. It remains an oil and gas company but has a strong vertical integration across the upstream, midstream, and downstream parts of the oil and gas industry. It produces plastic, synthetic rubber, and other chemical products. The company has invested in carbon capture and storage and other low-carbon technology solutions.
• Strong Business Capabilities: It is also one of those companies that have been studied and acknowledged for its management and leadership. ExxonMobil has built organizational resilience by focusing on its finances, operations, innovative pursuits, business model, and corporate image. Investing in this company means banking on the capabilities of its executives and upper-management personnel.
Cons: Disadvantages of ExxonMobil Stock
ExxonMobil has figured into numerous controversies in the past. It has been accused of environmental mismanagement and has been blamed for its contribution to accelerating climate change and failure to respond to the ongoing climate emergency.
The market for oil and gas has always been volatile as well. The expansion of electric vehicle usage and alternative energy sources threaten the prospects of oil and gas companies. The following are the specific disadvantages of ExxonMobil stock:
• Volatile Oil and Gas Prices: The revenues and profitability of ExxonMobil remain tied to the prices of oil and gas in the global market. The market is affected by different factors beyond the control of a single company. These include geopolitical events, disruptions in international trade, supply and demand dynamics, and technological advancements in renewable energy sources.
• Capital-Intensive Operations: It is also important to note that the profits of an oil and gas company are also determined by its operational expenses. ExxonMobil has high operational expenditures because of its capital-intensive and resource-intensive requirements. This requires careful capital allocation and financial management to prevent straining its financial resources.
• Impacts of the Climate Crisis: The company has warned that some of its oil and gas properties may face impairment due to climate change. The ongoing climate crisis has also been forcing governments and other institutions to expand the utilization of cleaner and renewable sources of energy to reduce carbon emissions and lower their collective carbon footprint. These can impact fossil fuel supply and demand.
• Exposure to Regulatory Risks: ExxonMobil has been facing regulatory issues. Its operations have figured into several oil spills across the world. The company has also been accused of climate change denialism and human rights violations. Skeptics have noted that investing in this company carries some risks because of its potential to end up either bankrupt or dismantled by government regulations.
• Declining Oil and Gas Reserves: Another disadvantage of ExxonMobil stock is the alleged decline in its oil and gas reserves. The company noted in 2019 that it owned 22.4 billion barrels of oil reserves worldwide but data for 2021 indicated that its reserves had gone down to 15.2 billion barrels. A decline in prices would leave some of its crude oil, bitumen, and natural gas unqualified for its proven reserves.