Exxon Mobil, the biggest publicly traded company on the globe, is up a meager 3 percent since the S&P 500 hit a 12-year bottom one year ago. The stock is badly trailing its own industry as well, with an index of energy stocks in the S&P 500 up about 40 percent. The commodity Exxon peddles has surged more than 70 percent in 12 months.
“Money managers want a high beta energy play when oil starts to take off,” said Joe Terranova, Chief Market Strategist at Virtus Investment Partners. “It’s become a defensive energy name where investors hide out.”
The higher oil prices ironically hurt Exxon in the fourth quarter of last year as the raw commodity increased, but global demand for oil did not. Without the demand, Exxon was unable to pass the higher prices on to customers and it seriously crimped Exxon’s refining margins. Exxon’s net income fell 23 percent in the last quarter of 2009.
Investors are also unhappy with Exxon’s purchase of natural gas player XTO Energy for $41 billion in December, its biggest takeover in a 10 years. The shares are down 20 percent since the announcement of that deal.
“The market is telling you that it wants that cash to be returned to shareholders,” said Gary Kaminsky, former managing director for Neuberger Berman and ‘Fast Money’ regular. Kaminsky cited the stock’s measly 2.5 percent dividend yield and said he would be staying away until they show indications that buybacks and large dividend increases are part of their future plans. The XTO deal is expected to close next quarter.
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Terranova believes that now may actually be the time to buy Exxon. “You want to buy things when others don’t want it and clearly people don’t want Exxon,” said Terranova. “Plus the downside risk is limited because not many investors would try to short a name the size of Exxon.”
Terranova, a ‘Fast Money’ trader, believes that valuation, dividend hikes, global growth exposure and a rotation out of the ‘hot’ names back into more defensive names will drive Exxon’s returns from here.
They better or Exxon won’t be the largest stock for long.
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Trader disclosure: On March 9th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), BTU); Pete Najarian Owns (BAC) Call Spread; Pete Najarian Owns (CMC) Calls; Pete Najarian Owns (ENER) Bonds; Pete Najarian Owns (INTC) Calls; Pete Najarian Owns (MCD) Call Spread; Pete Najarian Owns (QLGC) Calls; Pete Najarian Owns (C) Calls; Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (USO); Finerman's Firm Owns (WMT), (YUM); Finerman's Firm Is Long S&P Puts; Finerman Owns (AAPL); Finerman's Firm Owns (BAC), (BAC) Leap; Finerman Owns (BAC) Preferred, (BAC); Finerman's Firm And Finerman Own (GGP); Finerman's Firm And Finerman Own (GOOG); Finerman's Firm And Finerman Own (WFC) Prefered; Terranova Owns (GLD) March Puts; Terranova Is Short (XLY); Terranova Owns (AAPL), (EMC), (DELL), (MSFT), (GOOG); Kelly Owns (ELX) Calls; Kelly Owns (AMZN) Calls; Kelly Owns (QLGC) Calls; Edwards Owns (GLD) For Clients; Edwards Owns (GS) For Clients; Edwards Owns (INTC) For Clients; Edwards Owns (MCD) For Clients; Edwards Owns (WFC) For Clients; Edwards Owns (SPY) For Clients; Edwards Owns (QQQQ) For Clients; Jon Najarian Owns (CSCO), Is Short (CSCO) Calls; Jon Najarian Owns (AAPL), Is Short (AAPL) Calls; Jon Najarian Owns (GOOG), Is Short (GOOG) Calls; Najarian Owns (BAC) Call Spread; Najarian Owns (C) Calls; Najarian Owns (F) Calls; Najarian Owns (INTC) Calls; Najarian Owns (MCD) Call Spread
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Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
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Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (DBV)
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Kanundrum Capital Owns (C)
Kanundrum Capital Owns (JPM)
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Kanundrum Capital Owns (PHM)
Kanundrum Capital Owns (RYN)
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Kanundrum Capital Is Long U.S. Dollar
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