3 Reasons to Bank on Exxon Mobil, Even as Oil Prices Stay Low

The energy sector has been through a whirlwind, but a few select energy stocks have remained relatively stable and established their mettle during the downturn.

One exceptional outlier in the energy patch is oil behemoth Exxon Mobil Corp. (XOM) . As energy prices start to rise again, XOM is among the most promising growth investments available today.

XOM Chart XOM data by YCharts

The company has a history of outperforming its peers, reassuring uneasy shareholders by the sheer virtue of its unshakable reputation, reinforcing performance by the size of its balance sheet and delivering solid dividends time and again.

With proven oil reserves worth around $800 billion (the company's market value is less than 50% of that number), Exxon is a great buy regardless of the fluctuations in its environment.

Let's look at three reasons as to why you should buy the stock now:

1. Over the last year, Exxon Mobil has been executing maneuvers and adjustments to stay afloat in this perilous energy price scenario.

The company plans to cut Capex by one-fourthAfter 21 straight years of growing its massive oil and gas reserves, Exxon in 2015 replaced only two-thirds -- or 67% -- of the reserves it generated.

To refinance its debt situation, the company raised $12 billion through a bond issue. In fact, the company's debt offering could be indicative of a brightening picture. The rising demand for Exxon's bonds reflects the confidence investors continue to place in this stock. XOM belongs to a class of investments that won't disappoint in what promises to be a turbulent year for the broader markets

2. With considerable funds at its disposal, Exxon is looking to buy cheap assets, which are aplenty in this market.

The most heartening factor about the stock is the company's robust return on assets (ROA) and return on equity (ROE), far ahead of the industry average.

The company has always been a great capital allocator. This is probably why its shares, in terms of total return, have outperformed the integrated oil and gas peer stocks for five straight years (2011-2015). This streak of overwhelmingly positive numbers continues unabated in 2016 as well.

That said, if we look at earnings, the going looks tough for Exxon this year.

Analysts suggest the company should post earnings-per-share (EPS) of $2.45 for the year ended Dec. 2016, down from $3.85 last year. However, improvement in the bottom-line isn't too far away, because Exxon is scheduled to mount a recovery in the December 2017 year with an EPS of $4.22 (a year-over-year growth of 72.20% vs. 12.4% for the S&P 500). At a price/earnings to growth multiple of 1.25, the stock also offers value-for-money.

3. The company's 3.53% dividend yield isn't a bad deal at all.

Add to that, Exxon's illustrious dividend growth history: 33 years is extremely impressive in today's market where all around us, companies are suspending dividends.

While there are concerns raised around Exxon's ability to sustain its dividends, we think Exxon can well protect its dividend generating capacity. The payout ratio stands at around 73%.The company has already ended its share buyback program, a smart move which assures investors that the management is serious about paying dividends and distributing value.

With speculation rife on the probability that Exxon could snap up M&A targets like Continental Resources and Whiting Petroleum, the company is steadying a reservoir capable of adding great assets at a cheap price.

At an EV/EBITDA (TTM) of 12.04 times, the stock is trading at a slight premium over Chevron Corp. (10.72 times), but we feel its valuation discount vis a vis BP plc (15.37 times) could narrow soon.

If this is a sector you're looking at, choose Exxon -- and now, while it's still cheap.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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