Pump Rage? Get Even by Buying ExxonMobil

Although Exxon is exceptionally well-run, with the highest return on invested capital in the large-cap energy universe, it carries a valuation that is significantly discounted because the market appears to think that crude oil prices are heading massively lower any day now -- an outcome that would slash the company's earnings.

Thanks to more than a half billion dollars of investment in technology and systems design over the past several years, Exxon has been able to turn all that production into more profits than any company has been able to achieve in the history of the planet. It rewarded shareholders with a 39% total return last year, and the stock is up an additional 13% this year. And I believe there is still much more to come, as the company still earns a price-to-earnings multiple of only 12, while the S&P 500's multiple is 15.

In other words, the most profitable company on the planet, which has $5.33 a share in cash and is growing in excess of 10% a year, is getting a commoner's valuation. If investors were merely to decide to give Exxon the average valuation of the market, and it earns just the consensus of $6.75 per share next year (which I think is way too low), it would be trading at $101, or 20% higher than the current price.

Exxon is not trading at $101 now, because investors apparently believe that oil prices and refining margins have peaked and that its earnings will begin to backslide next year. I believe that is wrong, and I believe you should be loading up on Exxon on dips both for your retirement accounts and to offset your extra costs at the pump.