- Exxon Mobil's yield is near the highest it has been in three decades.
- Over the long term, 5% to 10% CAGR EBITDA growth could drive 9% to 17% CAGR total returns that could double or triple what investors in the S&P 500 enjoy.
- Exxon Mobil is about 27% undervalued, making it a very strong buy.
- This idea was discussed in more depth with members of my private investing community, iREIT on Alpha. Get started today »
This article was coproduced with Dividend Sensei and edited by Brad Thomas.
Note: As many of you know, I frequently write on REITs, but the purpose for this article is to provide readers with other dividend-paying alternatives and also to provide some of my recent investments. My goal is to provide readers with 2-4 articles per month that are non-REIT and that are actionable investments.
In a research paper, Bank of America recently highlighted one of their favorite sector recommendations of this year. Here's what BAC wrote on Dec. 2, 2019.
XOM is our top US oil major pick for 2020
In recent weeks we had the opportunity for multiple meetings with Exxon Mobil (XOM) management, including SVP Andy Swiger, XOM’s country team in Guyana and a week on the road in Europe with Investor Relations. Our takeaway is that XOM’s strategy of counter-cyclical investment through the cycle is approaching an inflection that we think should address market skepticism on whether it can translate to meaningful outperformance vs peers.
Media reports that XOM may be accelerating asset sales align with our view that non-core disposals could exceed Street expectations and also underlines our view for upside risks to its target to double cash flow by 2025 and which our analysis suggests could support our PO of $100/sh. Ahead of 2020, XOM is our top US major oil pick. Reiterate Buy." - Bank of America (emphasis added)
We understand why BAC is bullish on oil for 2020.
(Source: SL Advisors)
Energy is trading at the biggest discount to the broader market in a decade.
(Source: Brian Gilmartin)
And while analyst EPS growth forecasts must always be taken with a healthy grain of salt, especially for cyclical industries, the fact is that the energy sector is expected to post the strongest earnings growth this year.
Decade low valuations + strong earnings growth = huge upside potential for this year, which brings me to Exxon Mobil, BAC's top pick for oil majors.
Exxon Mobil's yield is near the highest its' been in three decades.
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