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Tim Brown: Keep Your Eyes on Exxon

Tim Brown

No matter how good some teams play, its nearly impossible to live up to expectations. Every year, the New York Yankees are expected to win the World Series by team management. Anything less is considered a failure.

The same goes for the 2007 New England Patriots. This team steamrolled through the regular season, winning every single game. After a performance like that, anything short of winning the Super Bowl was considered a failure.

And yet, the Patriots came up short, falling to the underdog New York Giants. Looking back, do you think anybody is really going to say, "Wow, the Patriots sure had a great season?" It's highly unlikely. The 2007 New England Patriots will be remembered as the team that has a shot at immortality -- to go undefeated -- but came up just a little short in the big game.

Perception is not always in line with reality, however. I am willing to bet that most fans of NFL teams around the country would prefer the overall performance of the Patriots squad to that of their own teams. The fact still remains the Patriots are one of the best teams in the league year in and year out.

While they didn't meet expectations last year, they are still a force to be reckoned with. I feel the same way about Exxon Mobil(XOM Quote).

Exxon said last week that its second-quarter earnings grew by 14%. Its profits checked in at $11.6 billion, or $2.22 a share, up from $10.2 billion, or $1.83 a share a year earlier. However, despite the growth, the company still fell well short of analysts' expectations, and The Street has sent shares lower. Analysts, on average, had been calling for $2.52 a diluted share.

Each day since the announcement last Thursday, Exxon has closed the session lower than it started. Yesterday was the worst, losing $3.12 a share of 3.19% to close at $76.60. Yesterday, it hit a new 52-week low. The stock has declined more than 8% in the last year. Contributing to its decline was news that crude oil closed down significantly.

The stock has developed a nice little pattern in recent quarters. It delivers its earnings announcement, the stock falls for a bit and then comes back. The last two quarters it has fallen for about a week following the quarterly numbers and it slumped for about two weeks the quarter before that. That's because as well as the company has performed, the Street wanted more.

But it is important to take a step back and really look under the hood. This company is solid. It's got revenue of $389 billion and a boatload of cash on hand -- $41.39 billion to be exact. Its operating cash flow stands at $59.14 billion. Lastly, it has a forward price-to-earnings ratio of just 7.39 and a return on equity (ROE) of more than 35%.

This company is a good one, and one that I am going to continue to watch during the next day or so. The stats don't lie; this company is built on a solid foundation. However, I am going to be careful here. As much as I like this company, I want to see how it will react for a day or two more. I don't want to be buying if yesterday's drop in oil is the start of a larger trend.

A few days should give me the time I need to assess whether I want to go ahead or not. Plus, as I noted above, the stock has fallen for about a week following its last two earnings announcements. It reported its earnings on July 31, so this timeline fits in with that as well.

Keep moving the chains!