An Insider’s Family Trust Is Buying This Energy Company
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
According to a Form 4 filed with the SEC, a family trust related to Exxon Mobil (NYSE: XOM) vice president Patrick Mulva purchased 11,000 shares of the company’s stock on March 13 at an average price of $89 per share. We have been spending much of our time in the last month tracking 13F filings from hedge funds and other notable investors in our work developing investment strategies; for example, we have found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year.
However, this purchase of almost $1 million in stock at one of the largest U.S. companies by market cap got our attention: Studies show that insider purchases are often bullish signals, and we think that this is because insiders have to be confident in the company to buy and therefore ignore the benefits of diversification.
Exxon Mobil’s stock price is about flat from a year ago. Despite lower revenues, the oil and gas company managed to increase its earnings per share by 15% in 2012 compared to the previous year; in fact, EPS topped results from 2008 for the first time since that year. This comes in contrast to many energy companies, particularly those specializing in natural gas, which have encountered severe difficulties.
This has placed Exxon Mobil at a valuation equal to 9 times its trailing earnings, though Wall Street analysts expect a bit of a decline in earnings per share over the next couple years--the forward P/E, based on consensus for 2014, is 11. The stock pays a dividend yield of 2.5%.
Exxon Mobil was one of the most popular energy stocks among the hedge funds and other notable investors in our database of 13F filings for the fourth quarter of 2012. The Bill and Melinda Gates Foundation reported a position of 7.6 million shares. Billionaire Ken Fisher’s Fisher Asset Management slightly increased its holdings of Exxon Mobil, closing December with 4.8 million shares in its portfolio. AQR Capital Management, managed by Cliff Asness, cut its stake by 6% but still owned 3.1 million shares of the oil supermajor.
Other large energy companies include BP (NYSE: BP), Chevron, Occidental Petroleum, and ConocoPhillips (NYSE: COP). Most of these peers trade at 10 to 11 times forward earnings estimates, in line with Exxon Mobil--in other words, not giving the larger and arguably better run company any premium. BP is the exception, with its poor reputation from the Deepwater Horizon disaster likely contributing to the fact that it is cheaper than these industry peers at a forward P/E of 8.
Exxon Mobil does have the lowest dividend yield of these five companies; while the gap is fairly small in the case of Chevron and Occidental, ConocoPhillips pays a yield of over 4% and BP’s (going by recent quarterly payments) is over 5%. Exxon Mobil matches up fairly well to its peers, though we are eyeing BP’s discount on an earnings basis as well as its high yield and think that it may be a risky value play, though one with significant upside potential.
Exxon Mobil certainly doesn’t look overvalued compared to other oil majors, and with a large insider purchase as well we think the stock could be well worth a look for investors who can handle some exposure to oil and gas prices in their portfolio. The exception would be for income investors, who would be better served by Exxon Mobil’s competitors. In either a value or a dividend case, however, BP also looks like it is worth considering.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has a long position in COP.The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!