The Fall of Exxon Mobil

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The great and mighty Exxon Mobil ($XOM) has been delisted from the DOW Jones Industrials Index (which has been there since 1928), replaced by Salesforce.com. As recently as 2013, Exxon  was the the most valuable company on the planet. Its market value topped out at $446 billion in mid-2014, the last time crude prices traded above $100 a barrel. But Exxon is now a shell of its former self. Exxon is still clinging to their dividend (as of today it's a whopping 9.18%!), chasing debt to pay down their dividend rather than cut like rival Shell ($RDS) who hasn't seen a dividend cut since WW2. The coronavirus is taking it's toll on Wall Street and Corporate America, but I never though I'd see Exxon take a beating like this. Their management hasn't been stellar and could use a shakeup, but Exxon are loyalists and extremely rigid. Oil isn't going anywhere, and the rise of electric vehicles will be powered by natural gas (which Exxon is a big player in), not to mention a massive downstream business to buoy them during low oil prices. Chevron is still on the DOW.

What are your thoughts? Is this is sign of things to come? Is the post-COVID world going to look radically different than pre-COVID (negative rates?). 

Comments (10)

 
Sep 11, 2020 - 8:47pm

From a historical and nostalgic perspective, that is kind of unfortunate.  With that said, The Dow is only popular in the media.  Money managers do not use the Dow as a benchmark.  Also, it is a sign of the times, as energy stocks represent a much smaller part (3%) of indexes like the S&P 500 compared to just 5 years ago.  

http://www.series65examtutor.com
 
Sep 11, 2020 - 9:01pm

Dude, the DJIA is a laughingstock with the sole benefit of being able to calculate easily with a Dixon Ticonderoga #2 pencil. Your grandfather may ask about it.

This is done because the AAPL split quarters it's weight in the index, they can't add the likes of Amazon due to the high share price and need to keep 30 constituents.

If anything not adding TSLA to the September SPX rebalance is the bigger news to professionals.  People actually benchmark to that and track it.  The DJIA has <1% as much money behind it as the S&P 500

 

I wrote a long intelligence brief to everyone at my firm on this a few weeks ago when it was news. You're a day late and a dollar short.

I generally see somebody I know on TV on Bloomberg/CNBC etc. once or twice a week. This sounds cool, until I remind myself that I see somebody I know on ESPN five days a week.
 
Sep 12, 2020 - 3:05pm

> If anything not adding TSLA to the September SPX rebalance is the bigger news to professionals.  People actually benchmark to that and track it. 

 

I understand the importance of the S&P 500, however I disagree that TSLA should be added. Despite the emotions around this company, it has never had an *annual* profit in it's history, not to mention all the issues surrounding it's volatile CEO, Elon Musk (remember the "4/20" incident, if any other CEO in the country tried to do that they'd be in jail or at the very least removed from their position). Yeah sure it has had 4 consecutive quarters "not in the red" but a lot of that is due to Tesla selling regulatory credits (which will not last). 100% Tesla should stay off the S&P 500. Just my 0.02 

 
Sep 12, 2020 - 3:37pm

I mean what you mentioned is the biggest of many shitshows. The  SEC's problem is that the loss of investor value is a larger mandate for them than stupidity, and jailing him would likely absolutely tank that.

I think that they hit the minimum S&P inclusion requirement prior to this quarter. (Its Saturday I'm not going to call them and ask what datasources they use and confirm)  The committee does have final say and this would be one of the largest adds ever.  Thankfully not much of what I do would be affected, since I basically never run with cap weight products, but it would be a mess for some of our competitors. (maybe I should have been rooting for it)

I generally see somebody I know on TV on Bloomberg/CNBC etc. once or twice a week. This sounds cool, until I remind myself that I see somebody I know on ESPN five days a week.
 
Sep 11, 2020 - 9:47pm

No one cares about the Dow, not a real benchmark. 

Regarding oil and Exxon, Covid hit oil demand just as Saudi/Russia had a price war. So oil capex/production fell hard, once the economy recovers oil demand will pick up and with it oil prices will rise due to the current capex/production cut among E&Ps. 

Sure, EVs are an impact, but a longer term issue. If the USD remains weak, that's another demand driver for oil and boost for global growth. 

Next year should be a good year for oil, and with it major and (surviving) minor oil producers.  

 

 

 
  • Prospect in IB - Ind
Sep 12, 2020 - 9:16am

Right... you didn’t mention how the demand growth forecast continuous being lowered. O&G will never completely die, there’s simply no way (yet) to replace petrochemicals or internal combustion engines for big transportation modes.
However, there’s no growth anymore in that industry. Not when you have different players that can flood the market in a second (Saudi Arabia, russia, shale...)

"Drill, Baby, Drill" - Sarah Palin
 
Sep 12, 2020 - 9:42am

Not sure why I'm getting MS for contributing to a discussion. Throwing MS doesn't really encourage discussion.  

I would say that demand timing is an unknown forecast that covid is blurring right now. Sure EVs are rising, but the emerging mkt population (oil demand growth source) won't be driving Tesla's anytime soon. GS's rpt out last week (MS had a similar one this week) has oil demand reaching pre-covid level by 2022, that's all about the economic recovery post-covid, nothing to do w/ EV. 

Don't get me wrong, I'm not for oil by any means, but the timing of widespread EV penetration is impossible to forecast and oil will be with us (like it or not) for a while. 

As for the players, this really isn't new. We've had oil producers that could flood the mkt in a second (Saudi, Russia). Shale isn't a unified actor by any means that can flood the market in a second. More that tech is improving to drive down wellhead cost, but some basins will never be competitive due to the rock (i.e. the Mississippian) while others will be (Permian) and infrastructure is key for shale (one reason why the Bakken never really took off). 

 

 

 

 
Sep 12, 2020 - 3:31pm
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