The energy space took a beating last year and Exxon Mobil (NYSE:XOM) was no exception. XOM stock fell 57.8% from its 2020 high to its low, underscoring how poorly the industry did last year.
While many industries and stocks have recovered to new highs, energy has been a clear laggard. It was the worst-performing sector last year, and while the recent rebound in oil prices has helped lead a recovery in these stocks, it’s far from thriving.
For instance, XOM stock is up 78% from its March 2020 low. However, it’s still below its 2020 high. It underscores how the energy space, while doing better, isn’t thriving.
We Want Thrivers, Not Just Survivors
It’s great that Exxon Mobil survived. However, it’s clear that it’s not yet thriving.
The novel coronavirus dealt a crippling blow to many industries around the world. It will likely take years for these industries to come back in full force. Just look at 2021.
We’re already into the second quarter of the year and traveling, driving and the energy space are still not back to pre-coronavirus levels. I’m not saying they should be necessarily, but I am simply pointing out that they have not fully recovered.
While the U.S. is leading a formidable charge in its vaccination efforts, the rest of the world is still waiting for its chance to vaccinate its masses. While a U.S. recovery will bode well for many, Exxon Mobil really needs to see a global recovery for its business to get back to thriving.
That’s where XOM stock becomes a turn-off as far as an investment goes. Yes, its survival was impressive and management navigated the crisis pretty well. But unlike streaming video, semiconductors or a number of other industries that are accelerating due to the pandemic, energy companies are still focused on survival.
For example, Exxon Mobil is forecast to have 34% revenue growth in 2021. However, that’s still about 5% below its 2019 sales total. Further consensus expectations call for growth of just 8% in 2022.
Finally, Exxon Mobil is centered on fossil fuels, an energy source the world is clearly trying to move away from. While Exxon will likely play a role in the move toward renewables — albeit begrudgingly — I can’t help but think this old dinosaur isn’t positioned for the type of growth we look for in our investments.
XOM Stock Doesn’t Lie
The above arguments are draped in real-world observations, but that makes them susceptible to a good old fashioned bull-bear debate.
In my mind, I don’t like the investment case for XOM stock. That’s because the energy space is still struggling, the global recovery will take time, revenue growth continues to lag and the secular shift toward renewables will be a negative for Exxon.
However, bulls could argue the exact opposite. The U.S. economy is set to recover more quickly than expected, then the world economy will rebound next. They could also argue that the revenue growth is strong and that renewables will be an opportunity, not an obstacle for Exxon.
Fine — all of that is fair, and bulls have their case too. But here’s the thing: Price doesn’t lie.
At the end of the day, price is what pays. We make and lose our money in the stock market based on how our stocks trade.
Even before the coronavirus, XOM stock performed poorly. At the 2020 high, the stock was the same price it was in August 2006. That’s not a typo by the way. Excluding the dividend, shares had returned nothing over a 15-year period — and that was at last year’s high! Obviously the recent underperformance has worsened that observation.
So, while a larger rebound in 2021 may be on its way, we’re not looking for one- or two-year recovery plays. Instead, the goal is to find growth stocks riding long-term secular trends.
Oil is not much of a secular growth story. Blame it on U.S. production, blame it on the move toward renewables — blame it on whatever you want.
But it’s why we’re avoiding XOM stock.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.
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