Key Points
ExxonMobil is a resilient and diversified energy giant.
Wall Street's emotions are running high thanks to the geopolitical conflict in the Middle East.
Oil and natural gas are vital to the world economy, and every investor should probably have some exposure to these energy sources. ExxonMobil(NYSE: XOM) is a great option for that exposure almost all the time. However, the stock has been pretty volatile of late, and is now down more than 10% from its 52-week high. Is that an opportunity or should investors stay away?
Exxon is built to survive whatever comes its way
Exxon is one of the world's largest energy companies. It has a globally diversified portfolio, with assets spanning the entire energy value chain. On top of that, the company's balance sheet is the strongest in its peer group, with a debt-to-equity ratio of just 0.19x. It has proven it can survive the entire energy cycle, as evidenced by the decades' worth of annual dividend increases it has paid to shareholders.
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Even the most conservative dividend investors will likely find Exxon an attractive business. And the 2.8% dividend yield is more than twice what you'd collect from an S&P 500 index(SNPINDEX: ^GSPC) ETF. Basically, if you are looking to buy an energy stock right now, Exxon is a solid option.
There are better and worse times to buy Exxon
That said, the commodity-driven energy sector is inherently volatile. The current geopolitical conflict in the Middle East isn't all that unusual. Nor is the impact it has had on energy prices and the stock prices of energy sector companies. Exxon's current drawdown is just a reflection of investor sentiment driven by news flow from the Middle East.
However, you have to put the drawdown into a larger context. The stock is still up more than 35% over the past year. If you wait for an energy sector downturn, you'll likely be able to buy Exxon at a much more attractive price and with a more attractive dividend yield. History suggests that waiting will eventually offer that opportunity.
Why are you looking at oil stocks?
If you are looking at Exxon simply because oil prices have risen due to tensions in the Middle East, you should probably hold off on buying it. Trying to time an inherently uncertain geopolitical event in a highly volatile sector exposes you to significant risk. You are, basically, trying to time the behavior of the often lemming-like crowd.
If you are looking for long-term exposure to the energy sector, buying Exxon is almost always a good option. However, even then, you might want to wait. But make hard plans to step in during the next energy downturn, so you have the courage to buy when everyone else is likely to be selling. Perhaps consider a yield of around 3.5% as a trigger to reconsider buying it, as that would be a historically attractive yield for the stock.
Should you buy stock in ExxonMobil right now?
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
