No Tap to Turn for More Crude Oil

Supply side problems

On 22 June 2022, Crude Oil WTI Futures retreated to $104 a barrel – a month-low. But with all things considered, the first half of 2022 still saw oil prices climbing from around $70 to a high of $122 – which is roughly a 70% increase. Due to high oil prices, fuels and transportation costs are higher, so is the general price level.

When Russia is being sanctioned by the US and European countries, they have to seek new sources for crude oil. Naturally, they have turned to OPEC+, the Organization of the Petroleum Exporting Countries, asking its members to increase production. However, there were only negligible changes in total quantity produced in the months passed.

How come it is so difficult to increase oil production? In order to answer this question, one must have a basic understanding of the oil industry. Oil producers come in all shapes and sizes, from nationally owned enterprises (National Iranian Oil Company), multinational corporations (ExxonMobil), to small-sized private companies.

99 problems for oil producers

Nationally owned enterprises primarily follow the nation’s interest, which goes further than basic financial gains, geopolitics and diplomatic relations played significant roles in their business decisions. The blatantly obvious example would be Russia and Iran, though they have a developed production system with huge production rates, clashing political interest dissuades the west from trading with oil companies in both nations.

Although multinational corporations do not have to answer to any government in particular, they still have to work for the shareholder’s (or investor’s) interests. Since the oil crash in 2015, oil companies have been suffering deficits, increasing production also translates to higher operating costs, such as hiring more workers, purchasing and maintaining new machines etc.

Even for oil giants like ExxonMobil, a major decline in oil prices can easily cancel out the revenue brought by hiking production. As a result, major private oil companies became more prudent in expanding their production.

As for small-sized oil producers, their concerns and hardships are often greater than the larger companies mentioned above. A smaller size greatly increases risks, e.g. a hurricane might completely destroy the only oil facility, ceasing the sole source of income.

Moreover, the oil industry in general suffers from labor shortage, companies were unable to re-hire workers laid off in the 2015 oil crash, long hours and harsh conditions do not make a welcoming recruiting message. When it comes to smaller producers, a single worker can make a huge difference.

Other than labor shortage, all oil producers also faced shortage in equipment parts, which in turn diminished maximum production capabilities. The functional spare machines were often dismantled for repairing those that are currently in use, recent supply shocks have limited the availability of new parts and pushed up prices. Over time, fewer operational machines produce less oil.

Even if all the previous issues are addressed, it takes time to train new workers, repair idle oil wells and machines, requiring several months to pump barrels of oil again. Although it is considerably faster than exploring and drilling at a new source. In short, oil producers lacked the proper motivation and resources to increase production. When it comes to response time, the supply side is not as nimble as the demand side. Check the latest crude oil price here.

Best ETFs To Buy In 2022

Key Insights

  • QQQ will gain strong upside momentum in case the broader market starts to rebound. 
  • XLE has a good chance to continue its strong move as demand for energy increases during the summer season. 
  • GDX could serve as a defensive asset if markets find themselves under pressure in the second half of the year and demand for gold increases. 

Global markets remain volatile, and many investors are searching for safer options to protect their funds. ETFs offer an easy way to get exposure to indexes or market segments without picking individual stocks. In this article, we’ll take a look at several ETFs which could provide interesting opportunities this year.

Invesco QQQ Trust

Invesco QQQ Trust has been under significant pressure since the start of this year as traders moved away from higher-PE stocks. As a result, QQQ is down by more than 20% year-to-date.

QQQ dynamics are driven by the dynamics of leading tech stocks like Apple, Microsoft, Amazon, and Tesla, which are trading at a discount to their recent price levels.

In case the general market mood improves in the second half of the year, money would flow back into these stocks, which will be bullish for QQQ.

Energy Select Sector SPDR Fund

Energy Select Sector SPDR Fund enjoyed strong upside momentum this year as energy prices increased.

XLE is heavily focused on Exxon Mobil and Chevron, although it also has services stocks like Schlumberger and refiners like Marathon Petroleum among its holdings.

While Exxon Mobil and Chevron are trading at all-time highs, they are valued at roughly 12 forward P/E and have a good chance to gain additional upside momentum in case WTI oil spends this summer above the $120 level.

VanEck Gold Miners ETF

Gold has lost a lot of ground after touching highs near $2070 in March, so it’s not surprising to see that VanEck Gold Miners ETF has been under pressure in recent months.

GDX is a good bet on the gold price rebound which would be useful in case gold starts to move back towards its yearly highs due to increased uncertainty.

It should be noted that gold prices have moved lower due to rising Treasury yields, but it remains to be seen whether rates will continue to rise at a fast pace as the economy would face material problems if the 10-year Treasury yield settles above the 3.50% level. If Treasury yields settle in the 3.00% – 3.50% level, gold will have a good chance to gain upside momentum.

To keep up with the latest earnings updates, visit our earnings calendar.

Best Energy Stocks To Buy In June

Key Insights

  • WTI oil is trying to settle above the $120 level despite OPEC+ recent decision to increase oil production. 
  • Driving season and the end of lockdowns in China serve as bullish catalysts for oil markets. 
  • Exxon Mobil and Chevron are trading at 11-12 forward P/E and have good chances to continue their current bullish trend. 

WTI oil continues its attempts to settle above the $120 level, so energy stocks remain in high demand. Meanwhile, analyst estimates for major oil companies are moving higher, which could provide additional support to oil-related stocks.

Chevron

Analysts expect that Chevron will report earnings of $16.52 per share in 2022 and $14.24 per share in 2023, so the stock is trading at 12 forward P/E.

Chevron is already up by roughly 50% this year, but the stock remains relatively cheap. Analysts estimates for Chevron continue to improve, which is not surprising as WTI oil is trading near the $120 level.

The recent OPEC+ decision to increase production failed to put any material pressure on the oil market which reacts to the end of lockdowns in China. In this light, Chevron stock has a good chance to gain additional upside momentum in the upcoming weeks.

Exxon Mobil

Exxon Mobil is moving towards all-time highs that were reached back in 2014. Currently, the stock is trying to settle above the $100 level.

Analysts expect that the company will report earnings of $8.61 per share in the next year, so the stock is trading at 11 forward P/E, which is a bit cheaper in comparison with Chevron.

High oil prices and investors’ rush into energy-related assets remain the key drivers for Exxon Mobil stock. While Exxon Mobil is already up by about 60% in 2022, it will gain solid upside momentum in case WTI oil settles above the $120 level and moves towards yearly highs near the $130 level.

To keep up with the latest earnings updates, visit our earnings calendar.

Best Energy Stocks To Buy In May

Key Insights

  • WTI oil stabilized above the $100 level as traders wait for EU sanctions on Russian oil. 
  • Exxon Mobil and Chevron are valued at 11 – 12 forward P/E. 
  • Analyst estimates keep moving higher, which should provide additional support to the companies’ stocks. 

WTI oil has pulled back from March highs as lockdowns in China put pressure on demand for oil. However, oil-related stocks continue to trade near yearly highs as traders prepare for the impact of the upcoming EU sanctions on Russian oil. In this environment, shares of oil majors may get more support.

Exxon Mobil

Exxon Mobil has recently released its first-quarter report. The company reported revenue of $90.5 billion and adjusted earnings of $2.07 per share, beating analyst estimates on revenue and missing them on earnings.

The company has also announced an increase in its share repurchase program up to a total of $30 billion through 2023.

Currently, the stock is trading at 11 forward P/E. Analyst estimates keep moving higher as analysts realize that high oil prices are here to stay, so Exxon Mobil’s valuation looks conservative.

Chevron

Trading at 12 forward P/E, Chevron is a bit more expensive than Exxon Mobil. The company has recently reported its first-quarter results, missing analyst estimates on both earnings and revenue.

However, analyst estimates continue to move higher at a robust pace, which is bullish for Chevron stock. It’s hard to expect significant multiple expansion for a company like Chevron, but the continued increase in earnings estimates for 22 and 2023 should provide enough support to the company’s shares in the upcoming weeks.

In the near term, traders will need to monitor news from China. In case the situation with coronavirus in the country normalizes, oil will move higher, which will be bullish for Chevron and other oil-related stocks.

For a look at all of today’s economic events, check out our economic calendar.

Best Defensive ETFs to Buy Now for May 2022

One way investors handle these conditions is by getting defensive – sometimes the best offense is a good defense. So, today I want to highlight defensive ETF opportunities. The focus will be on great companies that sell what’s in demand, regardless of economic conditions. Typically, that means bigger firms with solid balance sheets and cash on hand to pay dividends.

Markets and Big Money in the Last Six Months

My research firm, MAPsignals, measures Big Money investor activity. That includes institutions, pension funds, big individual investors, and so on. Our research shows Big Money moves markets. In fact, we created the Big Money Index (BMI), which measures large-scale investor activity and is a gauge of the market’s past and future (the BMI tends to lead markets). It’s nosedived recently:

That’s due to heavy selling and an absence of buying:

Chart Description automatically generated

These conditions are making investors play defense. As such, we’ve identified some defensive ETFs we think have good current prospects as well as solid long-term potential: MLPA, XYLD, VDE, SCHD, and HDV. Blended together at equal weight, a portfolio of these ETFs would pay a dividend yield of 5.3%.

Long-term investors should look for ETFs (and their stocks), with great setups. Remember, ETFs are just baskets of stocks, so we need to look at them in detail. MAPsignals specializes in scoring more than 6,500 stocks daily. If I know which stocks compose the ETFs, I can apply stock scores to the ETFs. Then I can rank them all from strongest to weakest.

Let’s get to the five best defensive ETF opportunities for May 2022.

Global X MLP ETF (MLPA) Analysis

This ETF focuses on master limited partnerships or MLPs. It offers the benefits of investing in MLPs (like favorable tax treatment) along with the ease and liquidity of an exchange-traded product. MLPA offers a current 7.3% dividend yield, which is enticing, and is full of solid energy companies.

MLPA holds several powerhouse stocks. One example is Energy Transfer LP (ET), which is up 37% this year, grew sales in a year by 73.1%, and has a profit margin of 8.1%. Here are Big Money signals for ET:

Global X S&P 500 Covered Call ETF (XYLD) Analysis

What makes XYLD special is it uses a “covered call” strategy. A simple way to think of it is earning dividends on dividends. This ETF holds a nice mix of growth names for tomorrow and household names of today, plus it pays a nearly 9.6% dividend yield.

One great stock XYLD holds is Tesla Inc. (TSLA). It’s a long-time Big Money favorite with fantastic fundamentals, including a 10.3% profit margin, 3-year EPS growth of 336.2%, and 3-year sales growth of 37.8%. As the multi-year chart below shows, it’s been a growing giant for a while:

Vanguard Energy Index Fund (VDE) Analysis

The energy sector has been red hot for a while now. But just as geopolitical situations can move markets up, they can also move them down, and that’s happened in energy recently. We can see that in VDE below. Still, there are tailwinds like inflation and global energy needs, so there’s still a bullish outlook. Don’t forget the dividends either – VDE pays a 3.2% current dividend.

This ETF holds the big energy producers we’ve come to know, including Exxon Mobil Corporation (XOM), which is a dividend cash cow that’s been on a tear recently. The company has a one-year sales growth rate of 57.4% with a profit margin of 8.2%. It’s also been a Top 20 Big Money buy for years:

Schwab U.S. Dividend Equity ETF (SCHD) Analysis

If the best offense is a good defense, then SCHD is a stalwart because it’s long on defensive positions, especially great dividend stocks. It pays a current 2.9% dividend yield, saw big buying in early 2022, and could see more as people flock to defensive investments:

A great dividend stock within this ETF is Pfizer Inc. (PFE), a profitable healthcare company (27.6% profit margin) with growing sales (3-year sales growth rate of 23.8%) that’s been a Big Money magnet. The multiyear chart below shows lots of Big Money buying:

iShares Core High Dividend ETF (HDV) Analysis

This is another strong dividend play as this ETF has been trucking along this year, despite headwinds and uncertainty. HDV holds household names with strong balance sheets and attractive dividend payments. It also pays a current 3.2% dividend, which is a likely reason it’s attracting Big Money buys:

A fantastic stock in HDV is Johnson & Johnson (JNJ), the healthcare giant. It’s a steady large-cap stock that has paid dividends for years. The fundamentals look good too as it’s profitable (22.3% profit margin), grew sales recently (1-year sales growth of 13.5%), and has rising earnings (3-year EPS growth of 13.3%). That’s probably why Big Money has been all over it for years:

Here’s a Big Money recap:

  • When Big Money buying pours in, stocks tend to go up
  • Red selling on great quality can be a great opportunity
  • Repeated buying usually means outsized gains

Bottom Line and Explanatory Video

 

MLPA, XYLD, VDE, SCHD, and HDV are my top defensive ETFs for May 2022. I believe these funds can rise higher in rough environments primarily because they hold great defensive stocks. These ETFs feature solid balance sheets and attractive dividend yields, so they’re high quality and battle tested.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds no positions in MLPA, XYLD, VDE, SCHD, HDV, ET, TSLA, XOM, PFE, or JNJ in managed or personal accounts at the time of publication.

Contact:

https://mapsignals.com/contact/

Best Dividend Stocks to Buy Now for May 2022

See, dividend payers are typically big, stable companies with rock-solid balance sheets. They not only can rise in value, but also provide stable cash flows. They’re holding their own right now, helping buoy markets overall. Let me show you what I mean.

Markets and Big Money in the Last Six Months

My research firm, MAPsignals, measures Big Money investor activity. That includes institutions, pension funds, big individual investors, and so on. Our research shows Big Money moves markets.

In fact, we created the Big Money Index (BMI), which is a 25-day moving average of Big Money buy and sell activity. It tends to be a leading indicator of market movement. Here is the BMI over the last six months laid over SPY:

The BMI is trending up lately because there are sections of strength within the market. Today, I want to focus on four of them – energy, staples, real estate, and health care. Unsurprisingly, they also happen to be big dividend-paying sectors.

Energy stocks have been on fire due to the geopolitical situation right now. Investors have often leaned on them in uncertain times because they pay dividends.

Staples too have been seeing inflows. Recession fears are setting in and investors want the certainty of companies selling what people need.

Chart, histogram

Description automatically generated

The real estate sector saw three HUGE buying days recently as people rush to holding tangible assets with strong cash flows.

Chart, histogram

Description automatically generated

Lastly, health care companies pay big, growing dividends, which is music to investors’ ears right now. Historically, it’s been a defensive area for investors, and it’s performing well now.

Chart

Description automatically generated

Not only do these sectors pay dividends, but the cream-of-the-crop dividend payers in these sectors increase their dividends regularly. That means investors get a raise, which is always welcome. So, those four strong sectors are featured in the top five dividend-paying stocks we like: XOM (energy), MO (staples), EXR (real estate), JNJ (health care), and ABBV (health care).

Exxon Mobil Corporation (XOM) Analysis

Up first is Exxon Mobil, which is an oil and gas producing giant that has consistently paid a big dividend (currently it’s at 4.0%).

Even though great stocks can be volatile, like Exxon Mobil the last few years, these companies are worthy of attention. Check out XOM:

  • 1-month performance (11.8%)
  • Historical Big Money signals

Just to show you what our Big Money signals look like, have a look at the buy signals XOM has made the last year in the chart below. Green bars show it was likely being bought by a Big Money player according to MAPsignals.

When you see a lot of them, as XOM has this year, I call it the stairway to heaven:

Source: www.MAPsignals.com

But, what about fundamentals? As you can see, XOM’s sales are strong, and its debt is manageable:

  • 1-year sales growth rate (+57.4%)
  • Debt/equity ratio (+31.5%)

Altria Group, Inc. (MO) Analysis

Next up is Altria Group, which is a tobacco company that has paid dividends for decades. Its current dividend yield is 6.5%.

Check out these technicals for MO:

  • 1-month performance (+7.1%)
  • Recent Big Money signals

Let’s look long-term. These are the top buy signals for Altria Group since 1990. The Big Money has bought time and again:

Source: www.MAPsignals.com

Let’s dive deeper. As you can see, Altria Group has been a stabile giant:

  • 1-year sales growth rate (+1.3%)
  • 3-year sales growth rate (+2.5%)
  • Profit margin (+11.7%)
  • Forward price-to-earnings ratio of 11.4x earnings

Extra Space Storage Inc. (EXR) Analysis

Another dividend-paying name we like is Extra Space Storage, which owns and operates self-storage facilities throughout the U.S. and Puerto Rico. It pays a nearly 2.3% dividend right now.

Strong dividend payers usually have Big Money buying the shares, and EXR has that. It’s also jumped in price recently:

  • 1-month performance (+13.1%)
  • Historical Big Money signals

Below are the top Big Money signals EXR has made since 2010. That’s the JUICE!

Source: www.MAPsignals.com

Now let’s look under the hood. Extra Space Storage’s sales growth and profits are impressive. I expect more in the coming years:

  • 1-year sales growth rate (+12.0%)
  • Profit margin (+50.5%)

Johnson & Johnson (JNJ) Analysis

Number four on the list is Johnson & Johnson, which is a health care behemoth and one of the biggest companies in the world. It just posted great earnings and raised its dividend by 6% (it currently yields almost 2.5%).

Here are the technicals important to me:

  • Year-to-date performance (+7.0%)
  • Historical Big Money signals

Below are the top Big Money signals for JNJ since 2006:

Source: www.MAPsignals.com

Let’s examine a bit more. Johnson & Johnson has been growing nicely and it should continue:

  • 1-year sales growth rate (+13.5%)
  • 2-year vs. 1-year EPS growth estimate (+5.5%)

AbbVie, Inc. (ABBV) Analysis

Our last dividend payer is AbbVie, which is a pharmaceutical company with many different focus areas. It makes a lot of money, which means it can pay big dividends (currently it yields more than 3.6%).

Check out these technicals:

  • Year-to-date performance (+15.0%)
  • Historical Big Money signals

ABBV is a high-quality stock with a high-quality dividend. That’s why it’s made the Top 20 report 14 times since 2012:

Source: www.MAPsignals.com

Now look under the hood. The company has had solid sales and earnings growth:

  • 3-year sales growth rate (+20.6%)
  • 3-year EPS growth rate (+44.3%)

Bottom Line and Explanatory Video

 

XOM, MO, EXR, JNJ, & ABBV represent top dividend-paying stocks to buy now for May 2022. Strong fundamentals, big and growing dividends, and historical Big Money buy signals make these stocks worthy of extra attention.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds long positions in MO, EXR, & ABBV in personal and managed accounts, and no positions in XOM or JNJ.

Contact:

https://mapsignals.com/contact/

 

Chevron Is Up By 3%, Here Is Why

Key Insights

  • WTI oil rallies as China eases the lockdown in Shanghai. 
  • This rally provides support to oil-related stocks and pushes Chevron closer to all-time highs. 
  • Analyst estimates keep moving higher, and Chevron has a good chance to test new highs. 

Chevron Stock Rallies As WTI Oil Gets Back Above The $100 Level

Shares of Chevron gained strong upside momentum after WTI oil returned to the $100 level.

The recent pullback in the oil market failed to put any material pressure on Chevron stock as traders prepared for a new world, in which oil prices would stay elevated for many months.

Analyst estimates continue to move higher at a robust pace. In the current year, Chevron is expected to report earnings of $13.44 per share, so the stock is trading at roughly 13 forward P/E.

It should be noted that at the start of this year analysts expected that Chevron would report earnings of less than $10.00 per share, so estimates are changing fast.

What’s Next For Chevron Stock?

China eased the lockdown in Shanghai, while the psychological effect of the release of oil from strategic reserves seems to be over, and traders focus on geopolitical tensions and energy scarcity.

In this environment, oil-related stocks will be in demand. Stocks of oil majors like Chevron are an obvious choice for those who are willing to get exposure to the sector but are not ready to get into the financial details of smaller companies.

Despite the strong rally in 2022, Chevron remains modestly valued, so the recent rise in Treasury yields does not present a threat to the stock. In case WTI oil settles above the $100 level and begins to move towards the $110 – $120 range, Chevron and other major oil stocks like Exxon Mobil will get more support.

For a look at all of today’s economic events, check out our economic calendar.

Which Stocks are Better to Buy – Oil, Gas or Renewable

The announcement on March 8, by president Biden, claiming all imports of Russian oil, gas, and energy sources will be banned at all American ports of entry has left investors seemingly hawkish, even as the Brent crude was trading well above $100 per barrel, an increase last witnessed in 2008.

The U.S. benchmark, the West Texas Intermediate, was also climbing sharply at the start of March, with prices per barrel toppling close to $120.

Even while consumer demand has remained steady, and countries imposing stricter diplomatic sanctions on Russia, fossil fuels, and renewable energy shares have entered some choppy waters in recent days, leaving investors on both sides of the aisle on whether the oil bubble is set to burst, or if renewables are still the safer bet?

The world is still predominantly oil and gas

While we’ve seen a lot of companies and governments trailing efforts shifting to renewable energy, the world still runs mostly on fossil fuels. From the road and transportation industry, production and manufacturing of goods, to energy and gas, there’s still a hefty reliance on fossil fuels.

As of 2019, around 84% of the world’s energy consumption primarily came from burning fossil fuels, including natural gas, coal, and oil – consumers, and governments are still relying heavily on the need for these fuels.

It does however make it a bit more clear to the investor who’s looking to make a quick buck with the oil and gas rally to see that prices for these energy resources aren’t going to come down any time soon.

With oil and gas prices rising, companies are looking for new ways to explore the market, and investors are willing to jump on the bandwagon, and rising prices are perhaps the last thing that’s putting off investors. During this time, companies in the oil and gas industry aren’t just seeing record-breaking revenues, but it’s also giving them the ability to strategize, as renewables are sweeping across markets.

Exxon Mobil (NYSE: XOM) announced at the start of the year a $22 billion expenditure budget, a hefty jump from the $17 billion in 2021. Exxon operations have gone global in recent years, with deepwater drilling in Australia, the Middle East, selected African waters, and the Permian Basin.

As demand has increased year-over-year, operations have grown bigger, and the positive outlook has for some time calmed any cuts to Exxon’s 4.5% dividend.

XOM can trail a successful year, and its $380 billion market cap is one way to attract investors who are willing to place their bets on Exxon as the fossil fuel movement remains quite strong across the world.

Even if Exxon is not delivering on its promise, there’s still Chevron, who’s been trailing XOM for quite some time, with a market cap just shy of $334 billion, and investors have been seeing positive returns as oil prices have been climbing.

Conoco Phillips (NYSE: COP) has been on investors’ watchlist for most of 2021 and so far 2022 as well. After the acquisition of Concho Resources in 2021, the company’s market cap trailed a healthy $129 billion, marking it as one of the biggest independent oil companies in the U.S.

With soaring oil prices, and its healthy balance sheet after spending more than $9 billion for Shell’s 225,000 net acres in the Texas Delaware Basin, Conoco is increasing its holdings and domestic influence.

The midstream American gas giant, Enterprise Products Partners (NYSE: EPD) is what investors are looking for, delivering increased capacity and production throughout the last few years, and its recent acquisition of Navitas Midstream Partners for $3.5 billion in cash is one indication of the current condition of the company.

As the current economic recovery takes its toll on Americans, with inflation hitting a 40 year high, EPD has been placed in a fortunate position, offering an investment with the ability to hedge inflationary price increases. With most of its debt secured for the long-term at 4.4%, increased prices can be passed off to the consumer, rather than the company itself.

EOG Resources (NYSE: EOG) is perhaps one of the more overlooked oil stocks on the market, yet its market cap of close to $68.97 billion keeps investors well on their heels, with the company constantly developing new technology and production equipment.

EOG places more interest and focus on using technology and big data in drilling operations than in the production, and exporting category. It placed them in a comfortable position, where the company now has acreage in the Eagle Ford shale, and among other giants in the Permian Delaware Basin.

Although environmental efforts and polarizing political agendas have scraped these companies from the spotlight, there’s still a hefty amount of steam left before they’ll witness renewables and sustainability taking a majority stake.

There’s still money in renewables

On the other side of the aisle, renewables have had a difficult road throughout the last few decades, but a push for Environmental Sustainability and Governance (ESG) policies by governments in developed and developing nations has helped them fast-track their global dominance.

SolarEdge Technologies (NASDAQ: SEDG) has been heading into 2022 with a strong pace, with a four-week gain of 23.6% between February and March. Analysts have been keeping an eye on SEDG as it managed to cross its 12-month target price from $327.05 to $328.91 per share.

Upcoming quarterly earnings of $1.31 per share represent a 33.7% change in the last year, with more than $600 million in expected revenues.

Perhaps Albemarle (NYSE: ALB), a global leader in the chemical industry should offer a bit more clarity to the rise in go-green stock purchases. The company which is among the largest producers of lithium saw its stocks rise by more than 58% in 2021.

With the demand for electric vehicles (EVs) and hybrids climbing to never-before-seen highs, Albemarle is perfectly positioned for another stellar year, even as some investors and consumers remain skeptical.

Renewable energy sources have increased by more than 45% in 2020, and these stocks are perhaps in for one rollercoaster year, out betting most estimates, with overall returns of more than 159% since 2019.

The real winner between oil, gas, and renewables is a hard swing, but a swing in the right direction nonetheless. Investors who are looking to increase their returns, while playing it safe are perhaps better off investing in big oil and gas companies.

Although demand for both industries has increased, there’s still no end to the consumption of fossil fuels yet, and as renewables start to take form, even in the most volatile markets there are hopes that their influence will see investors more interested.

Solar, wind, and hydropower stocks remain a stronghold, and a valuable asset to any portfolio, and for investors who are keener on adding stocks that will offer better long-term returns, you should perhaps look to lean more towards renewable stocks.

The deciding factor is irrelevant, in some cases, and investors should consider the risks that come along when choosing either or to invest in. There’s potential to grow, and whether you predict demise on the horizon or not, these stocks can become a vital asset to any portfolio.

Is It Too Late To Begin Adapting To Higher Volatility In The Market?

Now is the time for traders to adapt to higher volatility and rapidly changing market conditions. One of the best ways to do this is to monitor different asset classes and track which investments are gaining and losing money flow. Knowing what the Best Asset Now is (BAN) is critical for consistent growth no matter the market condition.

With that said, buyers (countries, investors, and traders) are panicking as the commodity Wheat, for example, gained more than 40% last week.

‘Panic Commodity Buying’ in Wheat – Weekly Chart

Chart Description automatically generated

According to the US Dept. of Agriculture, China will hold 69% of the world’s corn reserves, 60% of rice and 51% of wheat by mid-2022.

Commodity markets surged to their largest gains in years as Ukrainian ports were closed and sanctions against Russia sent buyers scrambling for replacement supplies. Global commodities, commodity funds, and commodity ETFs are attracting huge capital inflows as investors seek to cash in on the rally in oil, metals, and grains.

How does the Russia – Ukraine war affect global food supplies?

The conflict between major commodity producers Russia and Ukraine is causing countries that rely heavily on commodity imports to feed their citizens to enter into panic buying. The breadbaskets of Ukraine and Russia account for more than 25% of the global wheat trade and nearly 20% of the global corn trade.

Last week, it was reported that many countries have dangerously low grain supplies. Nader Saad, an Egypt Cabinet spokesman, has raised the alarm that currently, Egypt has only nine months’ worth of wheat in silos. The supply includes five months of strategic reserves and four months of domestic production to cover the bread needs of 102 million Egyptians.

Additionally, Avigdor Lieberman, Israel’s economic minister, said on Thursday (3/3/22) that his country should keep “a low profile” regarding the conflict in eastern Europe, given that Israel imports 50 percent of its wheat from Russia and 30 percent from Ukraine.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

The longer-term potential for much higher grain prices exists, but it’s worth noting that Friday’s close of nearly $12.00 a bushel for wheat is not that far away from the all-time record high of $13.30, recorded 14-years ago. According to Trading Economics, wheat has gone up 75.08% year-to-date while other commodity markets like Oats are up a whopping 85.13%, Coffee 74.68%, and Corn 34.07%.

How are other markets reacting to these global events?

Year-to-date comparison returns as of 3/4/2022:

-9.18% S&P 500 (index), -7.49% DJI (index), -15.21% Nasdaq (index), +37.44% Exxon Mobile (oil), +20.08% Freeport McMoran (copper & gold), -20.68% Tesla (alternative energy), -24.49% Microstrategy (bitcoin play), -40.51% Meta-Facebook (social media)

As stock holdings and 401k’s are shrinking it may be time to re-evaluate your portfolio. There are ETFs available that can give you exposure to commodities, energy, and metals.

Here is an example of a few of these ETFs:
+53.81% WEAT Teucrium Wheat Fund
+41.79% GSG iShares S&P TSCI Commodity -Indexed Trust
+104.40 UCO ProShares Ultra Bloomberg Crude Oil
+59.32% PALL Aberdeen Standard Physical Palladium Shares

How is the global investor reacting to rocketing commodity prices and increasing market volatility?

We can track global money flow by monitoring the following 1-month currency graph. The Australian Dollar is up +4.25%, the New Zealand Dollar +3.72%, and the Canadian Dollar +0.30% vs. the US Dollar due to the rising commodity prices like metals and energy. These country currencies are known as commodity currencies.

The Switzerland Franc +0.96%, the Japanese Yen +0.35%, and the US Dollar +0.00% are all benefiting from global capital seeking a safe haven. As volatility continues to spike, these country currencies will experience more inflows as capital comes out of depreciating assets and seeks stability.

We also notice that capital outflow is occurring from the European Union-Eurodollar -4.55% and the British Pound -2.22% due to their close proximity (risk) to the Russia – Ukraine war.

Table Description automatically generated with medium confidence source: finviz

Global central banks will need to begin raising their interest rates to combat high inflation!

Due to the rapid acceleration of inflation, the US Federal Reserve may have been looking to raise interest rates by 50 basis points at its policy meeting two weeks from now. However, given Russia’s invasion of Ukraine, the FED may become more cautious and consider raising interest rates by only 25 basis points on March 15-16.

What strategies can help you navigate current market trends?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals are starting to act as a proper hedge as caution and concern start to drive traders/investors into Metals and other safe-havens.

Now is the time to keep your eye on the ball!

I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

 

How Would Sanctions On Russian Energy Affect The World Markets?

Key Insights

  • The U.S. signals that it is ready to consider sanctions on the Russian energy sector. 
  • The markets are nervous as sanctions on the key exporter may lead to huge price spikes.
  • The big U.S. oil producers will benefit from this scenario. 

The U.S. Remains Open To The Possibility Of Banning Russian Energy

White House spokeswoman Jen Psaki has recently stated that the U.S. was “very open” to imposing sanctions on Russia’s oil and gas industry.

Traders have already begun to price in the possibility of such sanctions. As a result, WTI oil moved above the $100 level and attempted to settle above $112.50.

In 2021, Russia produced an average 10.52 million barrels per day (bpd), and this production continued to grow as OPEC+ relaxed its production curbs. According to IEA, Russia’s total oil production in January 2022 was 11.3 million bpd. Russia is the world’s largest oil exporter to global markets, exporting 7.8 million bpd in December 2021.

Not surprisingly, the markets are nervous in the current situation, as excluding a huge player could lead to uncontrollable consequences.

The situation is even tenser in the natural gas market, although the problems are limited to Europe as the natural gas market is more fragmented. The natural gas market in the U.S. will likely remain stable regardless of any future sanctions on Russia.

Energy Demand Is Inelastic And Sensitive To Small Changes

The main problem is that energy demand is inelastic. When you need heat in winter or energy to drive a car from A to B, you cannot postpone consumption. Meanwhile, it’s not easy to store oil or gas, and even the biggest reserves in the world are limited. In this light, even small changes in the demand/supply balance can cause massive price spikes.

We had already seen this during the coronavirus crisis in 2020 when the price of oil futures temporarily went below zero as demand declined, and traders were ready to pay any price to avoid taking delivery of oil that could not be stored.

If the U.S. and EU impose sanctions on Russia, the opposite may happen. Suddenly, the world will rush to buy non-sanctioned oil, while oil producers will have a hard time boosting output. OPEC+ struggled to meet its quotas due to lack of investment during the coronavirus crisis, while Western oil companies have reduced investments due to the shift to green energy.

Who Wins If Russian Energy Is Hit By Sanctions?

At this point, it looks that big U.S. oil companies like Chevron, ConocoPhillips, Exxon Mobil (despite its exposure to Russia) will be the main beneficiaries of the hard sanctions scenario. However, it is clear that Western governments will carefully weigh such a decision as it could create true chaos in energy markets, especially in the near term.

For a look at all of today’s economic events, check out our economic calendar.

Oil Giant Exxon Stock Rises on Record Profit; Target Price $100 in Best Case

Exxon Mobil shares rose nearly 2% in pre-market trading on Tuesday after the Irving Texas-based oil company reported the largest profit in seven years, thanks to higher energy prices and a waning pandemic.

The U.S. largest publicly traded oil company reported fourth-quarter 2021 earnings of $8.9 billion, or $2.08 per share assuming dilution, resulting in full-year earnings of $23 billion, or $5.39 per share assuming dilution. That was well above the market expectations of $1.73 per share.

This multi-fold rise in the fourth-quarter earnings was largely driven by higher energy prices. Supply shortages and political tensions in Eastern Europe and the Middle East pushed oil prices up on Monday, ending January at their highest level in a year.

On Friday, the benchmark, Brent oil, reached their highest levels in over a year, reaching $91.70 and $88.84, respectively, marking their sixth straight weekly gain. This was their best performance since February 2021, up 17%, Reuters reported.

Exxon Mobil’s board of directors approved the company’s corporate plan for 2022, with capital spending anticipated to be in the range of $21 billion to $24 billion. Beginning in the first quarter of 2022, the company announced share repurchases associated with the previously announced buyback program of up to $10 billion over the next 12 to 24 months.

Following this, Exxon Mobil stock rose over 1.55% to $77.1 in pre-market trading on Tuesday. The stock rose over 24% so far this year after surging nearly 50% in 2021.

Analyst Comments

“Improving FCF outlook and dividend sustainability. With a more constructive commodity price outlook, lower capital spending, and additional cash operating cost savings, the dividend is covered in 2021 and averages >100% over the next 5-years on our estimates. Improving dividend sustainability supports yield compression for Exxon Mobil (XOM) relative to CVX,” noted Devin McDermott, Equity Analyst And Commodities Strategist at Morgan Stanley.

“Cost cuts defend the dividend. In 2020, Exxon Mobil (XOM) reduced 2022-25 spending plans to $20-25B from $30-35B (recently extended to 2027), improving dividend sustainability while limiting further pull on the balance sheet. Additionally, XOM is targeting $6B in structural operating cost reductions by 2023 which should put upward pressure on consensus FCF estimates.”

Exxon Mobil Stock Price Forecast

Thirteen analysts who offered stock ratings for Exxon Mobil in the last three months forecast the average price in 12 months of $77.77 with a high forecast of $100.00 and a low forecast of $62.00.

The average price target represents a 2.38% change from the last price of $75.96. Of those 13 analysts, six rated “Buy”, seven rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $95 with a high of $110 under a bull scenario and $48 under the worst-case scenario. The investment bank gave an “Overweight” rating on the integrated oil company’s stock.

Several other analysts have also updated their stock outlook. Piper Sandler raised the target price to $85 from $79. Goldman Sachs lifted the target price to $84 from $71. HSBC increased the target price to $72.5 from $64. Truist Securities upped the target price to $70 from $65.

Technical analysis suggests it is good to buy as 100-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Check out FX Empire’s earnings calendar

Brace Yourself For Another Wild Month In Stock Markets

For the year, the Dow is down -6%, the S&P 500 is down just over -9%, and the Nasdaq has lost -14.7%. The previous record-holder is January 2009, an ugly moment for the economy, when the stock market fell -8.6%. In addition, the VIX – aka the CBOE Volatility Index – has actually dropped back to around 31 after topping 37 earlier this week, its highest point since November 2020.

Keep in mind, the index isn’t registering anywhere close to levels reached during other periods of “extreme” volatility. For example, the index, which is measured between zero and 100, hit its highest point of almost 83 during the financial crisis in 2008. Its most extreme point during the pandemic was around 66 in March 2020. So, by comparison, this week’s volatility has been rather mild.

Federal Reserve

Some insiders equate the wild swings in stock prices to investors, particularly “big money,” trying to establish a new baseline for stock valuations minus the Fed’s easy money policies that have driven a massive amount of cash into markets since the pandemic began in 2020.

At its height, the Fed was pumping as much as +$120 billion per month into the system via its asset purchase program, ballooning its balance sheet to now nearly $9 trillion.

At the same time, the Fed has held its benchmark rate at near-zero and, before that, hadn’t even attempted to raise rates since 2018, and then only briefly. The last full-cycle of rate hikes was 2015. What’s more, investors haven’t really had to factor for inflation since the early 90s and it hasn’t been this high since the 80s.

Bottom line, whatever the new “normal” ends up looking like, it will be dramatically different from the pre-pandemic investing landscape. I’ve heard several large stock traders saying it seems to be the return of Alpha instead of the race to levered Beta. I hear others on Wall Street referencing it to a bit of league recreational youth baseball team where everybody now gets an award simply for participation, but then kids run into a rude awakening when performance really starts to matter.

It feels like we are there in the stock market; every business that was coming into the market was simply being rewarded with participation points, now people are starting to keep a real scorebook and counting the strikeouts and runs scored.

Economy still roars

The good news is that the U.S. economy continues to roar. Historically, a combination of moderate inflation and moderate interest rates has led to some of the biggest boom times for U.S. Last week, the Commerce Department said Q4 Gross Domestic Product (GDP) grew at an annualized rate of +6.9%, stronger than Q3’s +2.3% and well above Wall Street expectations of around +5.7% growth.

Consumer spending climbed at a +3.3% annual pace led by a +4.7% increase in services spending. But the real stand out was private investment which rocketed +32% higher, boosted by a surge in business inventories as companies stocked up to meet higher customer demand. Rising inventories, in fact, contributed nearly +5% to Q4 GDP growth.

On the one hand, the inventory build is positive because it indicates an easing of supply chain dislocations that should in turn help with inflation pressures. On the other hand, many economists note that the big boost from retailer and wholesaler restocking is not likely to be repeated.

Companies will also likely start to unwind at least some of that inventory in the quarters ahead, which could drag overall 2022 GDP, especially if consumer spending also drops off. And investors are more closely tracking consumer behavior as inflation continues to rise.

With consumer spending accounting for about 70% of the U.S. economy, any signs that belts are tightening or moods are getting overly pessimistic will likely set off some alarm bells.

Data to watch

Turning to next week, it will be another busy one for both key economic data as well as earnings. The main economic data highlight will be the January Employment Situation on Friday. Other key data includes ISM Manufacturing, Construction Spending, and the JOLTS report on Tuesday; ADP’s private payrolls report on Wednesday; Productivity & Costs, Factory Orders, and the ISM Non-Manufacturing Index on Thursday.

Earnings wise, results are due from NXP Semiconductor and Trane on Monday; Advanced Micro Devices, Alphabet, Amgen, Chubb, Electronic Arts, Exxon, General Motors, Gilead Sciences, Match Group, PayPal, Sirius XM, Starbucks, and UPS on Tuesday; AbbVie, Aflac, Allstate, Boston Scientific, CNH, Corteva, D.R. Horton, Ferrari, Humana, Johnson Controls, Meta (Facebook), MetLife, Novartis, Novo Nordisk, Qualcomm, Siemens, Thermo Fisher, TMobile, and Waste Management on Wednesday; Activision Blizzard, Amazon, Biogen, Carlyle Group, Check Point, Cigna, Clorox, ConocoPhillips, Deckers Outdoors, Eli Lilly, Estee Lauder, Ford, Hanesbrands, Hershey, Honeywell, Ingredion, Merck, Pinterest, Quest Diagnostics, Royal Dutch Shell, Snap, SnapOn, Wynn Resorts, and Xylem on Thursday; and BristolMyersSquibb, CBOE, Phillips 66, Regeneron, and Sanofi on Friday.

Bottom line, brace for another huge week of extreme volatility.

Wall Street Week Ahead Earnings: Alphabet, PayPal, Exxon Mobil, Meta, Qualcomm and Amazon in Focus

Investors will focus on December quarter earnings for stocks that are economically sensitive, which should show better profits than technology stocks. Increasing Treasury yields and risk aversion will hit the stock market hard next week, making the big tech earnings that much more critical. In addition, investors will closely monitor the latest news on the rapidly spread Omicron coronavirus variant to see how it impacts earnings in 2022.

Earnings Calendar For The Week Of January 31

Monday (January 31)

TICKER COMPANY EPS FORECAST
CBT Cabot $1.06
CRUS Cirrus Logic $1.91
FN Fabrinet $1.28
HLIT Harmonic $0.09
NXPI NXP Semiconductors $2.67
PCH PotlatchDeltic $0.48
RYAAY Ryanair Holdings $-0.15
SANM Sanmina $0.91
TT Trane Technologies $1.31
WWD Woodward $0.83

 

Tuesday (February 1)

IN THE SPOTLIGHT: ALPHABET (GOOGLE), PAYPAL, EXXON MOBIL

ALPHABET: The parent of Google and the world’s largest search engine that dominates internet search activity globally is expected to report its fourth-quarter earnings of $26.71 per share, which represents year-over-year growth of about 20% from $22.3 per share seen in the same period a year ago.

The Mountain View, California-based internet giant would post revenue growth of nearly 27% to $72.133 billion from $56.9 billion a year ago. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

“Key Alphabet (GOOG) ’22 Ad Buyer Survey conclusions: i) Google Search remains highest ROI platform; ii) YouTube expected to gain ad share ’21-’23; & iii) GOOG Search & YouTube are the top platforms for ad buyers reallocating budget due to iOS changes. We est. GOOG’s share of WW Digital adv. (x-China) goes from 41% to 37% ’22-’27. We extended model to ’27, PT to$3,500 vs. prior $3,360, reiterate Outperform,” noted John Blackledge, equity analyst at Cowen.

PAYPAL: The digital payments company is expected to report its fourth-quarter earnings of $0.86 per share, which represents year-over-year growth of about 15% from $0.75 per share seen in the same period a year ago. The San Jose, California-based company would post revenue growth of over 12% to around $6.9 billion.

EXXON MOBIL: The oil company will see its earnings rise multi-fold in the fourth quarter thanks to higher energy prices and a waning pandemic that helped it bounce back after a tough period in 2020.

The Irving Texas-based company is expected to report its fourth-quarter earnings of $1.73 per share, which represents year-over-year growth of over 5,666%, up from $0.03 per share seen in the same period a year ago.

The U.S. largest publicly traded oil company is expected to report a 97.3% increase in revenue to $91.845 billion from $46.54 billion a year ago. On Dec 30, the Irving Texas-based company in its regulatory filing said that higher oil and gas prices would enable it to achieve annual profitability starting in 2021 with an operating profit increase of up to $1.9 billion.

The U.S. largest publicly traded oil company hinted that oil and gas earnings could decrease by up to $1.2 billion as a result of one-time charges for asset impairments and contractual costs. Exxon announced late last year announced that a sharply higher operating profit in oil and gas, prompting Credit Suisse, Scotiabank, and JPMorgan to raise their fourth-quarter earnings estimates.

“Improving FCF outlook and dividend sustainability. With a more constructive commodity price outlook, lower capital spending, and additional cash operating cost savings, the dividend is covered in 2021 and averages >100% over the next 5-years on our estimates. Improving dividend sustainability supports yield compression for Exxon Mobil (XOM) relative to CVX,” noted Devin McDermott, Equity Analyst and Commodities Strategist at Morgan Stanley.

“Cost cuts defend the dividend. In 2020, Exxon Mobil (XOM) reduced 2022-25 spending plans to $20-25B from $30-35B (recently extended to 2027), improving dividend sustainability while limiting further pull on the balance sheet. Additionally, Exxon Mobil (XOM) is targeting $6B in structural operating cost reductions by 2023 which should put upward pressure on consensus FCF estimates.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 1

TICKER COMPANY EPS FORECAST
AMD Advanced Micro Devices $0.69
AMCR Amcor $0.18
ASH Ashland Global Holdings $0.93
CTLT Catalent $0.79
CB Chubb $3.34
EA Electronic Arts $2.81
XOM Exxon Mobil $1.73
GM General Motors $0.84
NMR Nomura Holdings $0.2
SBUX Starbucks $0.8
UBS UBS Group $0.24
UPS United Parcel Service $3.05

 

Wednesday (February 2)

IN THE SPOTLIGHT: META PLATFORMS (FACEBOOK), QUALCOMM

META PLATFORMS (FACEBOOK): The world’s largest online social network is expected to report its fourth-quarter earnings of $3.78 per share, which represents a year-over-year decline of over 2% from $3.88 per share seen in the same period a year ago.

The Menlo Park, California-based social media conglomerate would post revenue growth of over 30% to around $33.04 billion. The social media giant has consistently beaten consensus earnings estimates in most of the quarters in the last two years, at least.

QUALCOMM: The world’s biggest mobile phone chipmaker is expected to report its fiscal first-quarter earnings of $2.77 per share, which represents a year-over-year decline of over 40% from $1.97 per share seen in the same period a year ago.

The chip manufacturer would post revenue growth of nearly 27% to $10.45 billion. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

Qualcomm forecasts GAAP revenue in the first quarter of fiscal 2022 to be between $10 billion and $10.8 billion. On a non-GAAP basis, earnings will likely range from $2.90 to $3.10 per share, while GAAP earnings will likely range from $2.53 to $2.73 per share, according to ZACKS Research.

“After underperforming the SOXX for most of 2021 until a sharp rally late in the year, we see a strong setup for a now Apple-overhang-free Qualcomm in 2022 as investors begin to appreciate the diverse revenue drivers beyond Wireless. Expect solid print and guide, with focus on execution and growth in the connected intelligent edge and update our estimates accordingly,” noted Matthew Ramsay, equity analyst at Cowen.

“We reiterate our price target of $210 based on 17.5x our F2023 EPS estimate of $12.0 and our Outperform rating.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 2

TICKER COMPANY EPS FORECAST
EAT Brinker International $0.5
CHRW C.H. Robinson Worldwide $1.85
CPRI Capri Holdings $1.67
CTSH Cognizant Technology Solutions $1.03
RACE Ferrari $1.08
FB Meta Platforms $3.78
MET MetLife $1.63
TMUS T-Mobile $0.2

 

Thursday (February 3)

IN THE SPOTLIGHT: AMAZON

The e-commerce leader for physical and digital merchandise, Amazon, is expected to report its fourth-quarter earnings of $3.9 per share, which represents a year-over-year decline of over 70% from $14.09 per share seen in the same period a year ago.

However, the Seattle, Washington-based multinational technology giant would post revenue growth of about 10% to around $138 billion. The company has beaten earnings per share (EPS) estimates most of the time in the two years.

“We are reiterating our BUY rating and our price target to $3,900. Our price target is based on our updated discounted cash flow model, including our long-term adj. EBITDA margin forecast of 22.0% versus 13.7% in 2020,” noted Tom Forte, MD, Senior Research Analyst at D.A. DAVIDSON.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 3

TICKER COMPANY EPS FORECAST
ABB ABB $0.38
ALL Allstate $2.72
COP ConocoPhillips $2.23
LLY Eli Lilly $2.37
HON Honeywell International $2.09
PRU Prudential Financial $2.44
SU Suncor Energy $0.95
SYNA Synaptics $2.63

 

Friday (February 4)

TICKER COMPANY EPS FORECAST
APD Air Products & Chemicals $2.51
AON Aon $3.33
BMY Bristol Myers Squibb $1.85
CBOE Cboe Global Markets $1.41
ETN Eaton $1.73

 

Exxon Mobil Stock Is Well Worth Watching Ahead of Q4 Earnings

Exxon Mobil will see its earnings rise by multi-fold in the fourth quarter thanks to higher energy prices and a waning pandemic that helped it bounce back after a tough period in 2020.

The Irving Texas-based company is expected to report its fourth-quarter earnings of $1.73 per share, which represents year-over-year growth of over 5,666%, up from $0.03 per share seen in the same period a year ago.

The U.S. largest publicly traded oil company is expected to report a 97.3% increase in revenue to $91.845 billion from $46.54 billion a year ago.

On Dec 30, the Irving Texas-based company in its regulatory filing said that higher oil and gas prices would enable it to achieve annual profitability starting in 2021 with an operating profit increase of up to $1.9 billion.

The U.S. largest publicly traded oil company hinted that oil and gas earnings could decrease by up to $1.2 billion as a result of one-time charges for asset impairments and contractual costs. Exxon announced late last year announced that a sharply higher operating profit in oil and gas, prompting Credit Suisse, Scotiabank, and JPMorgan to raise their fourth-quarter earnings estimates.

Exxon Mobil stock closed 1.29% higher at $75.13 on Thursday. The stock rose over 20% so far this year after surging about 50% in 2021.

Analyst Comments

“Improving FCF outlook and dividend sustainability. With a more constructive commodity price outlook, lower capital spending, and additional cash operating cost savings, the dividend is covered in 2021 and averages >100% over the next 5-years on our estimates. Improving dividend sustainability supports yield compression for Exxon Mobil (XOM) relative to CVX,” noted Devin McDermott, Equity Analyst and Commodities Strategist at Morgan Stanley.

“Cost cuts defend the dividend. In 2020, Exxon Mobil (XOM) reduced 2022-25 spending plans to $20-25B from $30-35B (recently extended to 2027), improving dividend sustainability while limiting further pull on the balance sheet. Additionally, Exxon Mobil (XOM) is targeting $6B in structural operating cost reductions by 2023 which should put upward pressure on consensus FCF estimates.”

Exxon Mobil Stock Price Forecast

Thirteen analysts who offered stock ratings for Exxon Mobil in the last three months forecast the average price in 12 months of $77.08 with a high forecast of $100.00 and a low forecast of $62.00.

The average price target represents a 2.61% change from the last price of $75.12. Of those 13 analysts, six rated “Buy”, seven rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $95 with a high of $110 under a bull scenario and $48 under the worst-case scenario. The investment bank gave an “Overweight” rating on the integrated oil company’s stock.

Several other analysts have also updated their stock outlook. Piper Sandler raised the target price to $85 from $79. Goldman Sachs lifted the target price to $84 from $71. HSBC increased the target price to $72.5 from $64. Truist Securities upped the target price to $70 from $65.

Technical analysis suggests it is good to buy as 100-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Check out FX Empire’s earnings calendar

XLE: You can Trust this Energy ETF, Both for Growth and Dividends 

Looking over a longer period comprising the March 2020 market crash, it is evident that the S&P 500 Energy sector as shown in the yellow chart below still trails the broader S&P 500 index. For its part, the SPDR Energy Select Sector ETF (XLE) has delivered an 11.56% gain during the last two years with most of the upside occurring in 2021.

Source: Trading View

Looking ahead, according to the U.S. Energy Information Administration (EIA), spot Brent crude prices are expected to average $79 this quarter. This is down from the current value of $87.7, but the EIA further adds that “developments in the global economy and the many uncertainties surrounding the pandemic” in the coming months could push oil prices up or down from its price forecast.

These uncertainties need to be understood in the context of the supply-demand paradigm.

The supply-demand paradigm

Here, the EIA’s statement that “U.S. natural gas consumption in 2021 was nearly the same level as 2020, and this will remain virtually flat in 2022 and 2023” is noteworthy as it means that there will be less oil-to-gas switching to clear any excess in the amount of oil produced. Thus, in addition to Brent’s spot price itself, the demand for natural gas also constitutes a tailwind for XLE. This said the ETF’s share price is also influenced by two other factors.

First, there is the ongoing sector rotation into energy, finance, and consumer sectors which have started in the second quarter of 2021 and gained momentum from November, which should also determine energy stock returns throughout this year.

Second, the global economic recovery after the drop in activity during the Covid-led confinements created a strong demand from September last year, while inventories, especially in Europe were low. These factors were responsible for the prices of natural gas skyrocketing in Europe as from October 2021 with the fuel-substitution effect being contagious to spot oil prices. This explains the bounce seen in energy sectors’ ETFs including the Vanguard Energy Index Fund ETF (VDE) from that period.

Gauging the supply side, a series of problems weighed on capacity including some countries seeing their production drop due to maintenance delays caused by the pandemic as well as failure to make timely investments in aging upstream infrastructure. This supply shortage was exacerbated by governments, (especially in China and Europe) giving priority to renewables projects and carbon credits while their “green energy” experts failed to foresee the imbalance between supply and demand.

The imbalance to persist

This imbalance is likely to persist in 2022, despite OPEC’s continued production increase and uncertainty associated with the Omicron variant impacting travel. Understandably, some smaller oil companies have been reticent to pump out more oil.

There may be some temporary respite in oil prices as from the start of February when China, together with the U.S. and some other major consumers, will release crude oil from their national strategic stockpiles. This coordinated action aimed at reducing global prices will induce some volatility in XLE, but this will be only for a limited period.

The reason is that the imbalance will persist with one of the reasons being the recovery in international travel.

In this respect, according to Statista, the total fuel consumption of commercial airlines worldwide which increased each year from 2005, reached a maximum of 98 billion gallons in 2019 before falling from 2020 due to Covid. It decreased to 57 billion in 2021. Now, there has been optimism that has been prevailing since the start of the year that the Omicron strain may prove to be less damaging to the health of people and by ricochet the economy.

This optimism is also backed by data, which indicates that despite Covid infection rates reaching an all-time high, the actual death rate is trending lower. Whatever the reasons for this, be it a higher vaccination rate or a less dangerous variant, more people are willing to take a flight. This is in turn proven by the number of international flight departures rapidly inching back up to 2019 levels according to the Bureau of Transportation statistics.

Thus, glancing back at the above chart, XLE could again climb back to its April 2019 high of $68-69 levels by the second quarter of 2022. Even if this upside is somewhat delayed due to volatility, the SPDR ETF pays substantial dividends.

The dividends

Holdings include oil supermajors Exxon Mobile (XOM) and Chevron Corporation (CVX) with a combined weight of 43.4% of overall assets. These are integrated oil and gas companies operating in every segment of the industry. Activities include extraction/production, midstream, petrochemical manufacturing, refining, and, even downstream activities like marketing and distributing refined petroleum products. People buy these companies primarily for their dividends.

The other holdings which are drilling, refining, or equipment provider plays also pay regular distributions to shareholders. This culminates in XLE paying a 3.62% yield. Here investors will notice that distributions that are paid on a quarterly basis reached the highest point in the fourth quarter of 2019 at $3.58.

Source: Chart prepared using data from Nasdaq.com

This was followed by a period of fluctuating quarterly payments around the $0.5 mark, before eventually rising from the third quarter of 2021. With oil prices remaining sustainably high, energy companies should continue to benefit from higher profitability which in turn enables them to sustain dividend payments and perform share buybacks.

Finally, with demand outstripping supply, the imbalance should persist in 2022. Inflationary pressures may slightly affect demand, but, here, recent fund flows indicate that XLE is inversely correlated to the broader market (SPX). Thus the energy sector ETF seems to be acting like an inflation hedge, a role which is also supported by its ability to pay above-average dividends yields. Consequently, XLE can be trusted for further upside and higher quarterly dividend payments too.

Disclosure: I/We are long XLE. This is an investment thesis and is intended for informational purposes. Investors are kindly requested to do additional research before investing.

 

Exxon Mobil to Post Multi-Fold Jump in Q4 Earnings

Exxon Mobil, an American multinational oil and gas entity, is expected to report its fourth-quarter earnings of $1.73 per share, which represents year-over-year growth of over 5,666%, up from $0.03 per share seen in the same period a year ago.

According to a Reuters report, Exxon announced last week a sharply higher operating profit in oil and gas, prompting Credit Suisse, Scotiabank, and JPMorgan to raise their fourth-quarter earnings estimates. The company will report its Q4 earnings on February 1.

On Thursday, Dec 30, Exxon Mobil in its regulatory filing said that higher oil and gas prices would enable it to achieve annual profitability starting in 2021 with an operating profit increase of up to $1.9 billion.

The U.S. largest publicly traded oil company hinted that oil and gas earnings could decrease by up to $1.2 billion as a result of one-time charges for asset impairments and contractual costs.

Exxon Mobil (XOM) earnings estimate reflects elimination of $0.7 billion margining headwinds, while a large divestment print will help d/cap fall firmly within its target range. Nevertheless, we do not see this altering distribution guidance. XOM could provide its FY22 capex guidance, which we forecast at $21 billion compared to consensus $20 billion,” noted Jason Gabelman, equity analyst at Cowen.

Exxon Mobil’s shares rose over 48% in 2021. It rose 0.54% to $63.88 in pre-market trading on Wednesday.

Analyst Comments

Exxon Mobil (XOM) extended its annual capex plan of $20-25 billion through 2027 and now expects to generate a cumulative $100 billion of excess FCF after dividends at $60 real Brent 2022-27, or 40% of the market cap. Strong dividend cover, rapidly improving B/S & robust FCF supports further yield compression,” noted Devin McDermott, equity analyst at Morgan Stanley.

“Improving FCF outlook and dividend sustainability. With a more constructive commodity price outlook, lower capital spending, and additional cash operating cost savings, the dividend is covered in 2021 and averages >100% over the next 5-years on our estimates. Improving dividend sustainability supports yield compression for XOM relative to CVX. Cost cuts defend the dividend. Exxon Mobil (XOM) reduced 2022-25 spending plans to $20-25 billion from $30-35 billion, improving dividend sustainability while limiting further pull on the balance sheet. Additionally, XOM is targeting $6 billion in structural operating cost reductions which should put upward pressure on consensus FCF estimates.”

Exxon Mobil Stock Price Forecast

Fifteen analysts who offered stock ratings for Exxon Mobil in the last three months forecast the average price in 12 months of $72.33 with a high forecast of $95.00 and a low forecast of $50.00.

The average price target represents a 13.83% change from the last price of $63.54. Of those 15 analysts, six rated “Buy”, six rated “Hold” while three rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $87 with a high of $110 under a bull scenario and $48 under the worst-case scenario. The firm gave an “Overweight” rating on the integrated oil company’s stock.

Several other analysts have also updated their stock outlook. Jefferies raised the target price to $62 from $59. JPMorgan lifted the price objective to $83 from $81. Barclays upped the price target to $73 from $71.

Technical analysis also suggests it is good to buy as 100-Day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity.

Check out FX Empire’s earnings calendar

Exxon Signals Quarterly Profit for the Fourth Time in a Row

Exxon Mobil, an American multinational oil and gas entity, in its regulatory filing said that higher oil and gas prices would enable it to achieve annual profitability starting in 2021 with an operating profit increase of up to $1.9 billion.

According to a Reuters report, The U.S. largest publicly traded oil company hinted that oil and gas earnings could decrease by up to $1.2 billion as a result of one-time charges for asset impairments and contractual costs.

In addition, Exxon said lower margins in chemicals could negatively impact earnings by $600 million to $800 million, compared to the $2.14 billion profits in chemicals during the third quarter.

The integrated oil company said the refinery margins could decrease by $200 million, or remain flat, compared to the $1.23 billion profit the previous quarter. Exxon indicated mark-to-market gains of up to $1.1 billion on oil and gas and refinery products.

Exxon Mobil will report Q4 earnings on February 1. Exxon Mobil stock closed 0.59% lower at $60.79 on Thursday. It surged over 47% so far this year.

Analyst Comments

“Improving FCF outlook and dividend sustainability. With a more constructive commodity price outlook, lower capital spending, and additional cash operating cost savings, the dividend is covered in 2021 and averages >100% over the next 5-years on our estimates. Improving dividend sustainability supports yield compression for Exxon Mobil (XOM) relative to CVX,” noted Devin McDermott, equity analyst at Morgan Stanley.

“Cost cuts defend the dividend. Exxon Mobil (XOM) reduced 2022-25 spending plans to $20-25 B from $30-35 B, improving dividend sustainability while limiting further pull on the balance sheet. Additionally, Exxon Mobil is targeting $6 B in structural operating cost reductions which should put upward pressure on consensus FCF estimates.”

Exxon Mobil Stock Price Forecast

Fifteen analysts who offered stock ratings for Exxon Mobil in the last three months forecast the average price in 12 months of $72.33 with a high forecast of $95.00 and a low forecast of $50.00.

The average price target represents an 18.98% change from the last price of $60.79. Of those 15 analysts, six rated “Buy”, six rated “Hold” while three rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $87 with a high of $110 under a bull scenario and $48 under the worst-case scenario. The firm gave an “Overweight” rating on the integrated oil company’s stock.

Several other analysts have updated their stock outlook. Jefferies raised the target price to $62 from $59. JPMorgan lifted the target price to $83 from $81. Barclays upped the price target to $73 from $71.

Technical analysis also suggests it is good to buy as 100-Day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity.

Check out FX Empire’s earnings calendar

U.S. stock buybacks head for record in third quarter

By Caroline Valetkevitch

NEW YORK (Reuters) -Total U.S. corporate stock buybacks are on track to hit a record for the third quarter as the U.S. economy bounced back from the global pandemic and chief executives became less fearful of spending cash.

S&P 500 companies in recent weeks have disclosed buybacks totaling $145 billion for the third quarter, and the total is likely to surpass $224 billion by the time all reports are in, Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said on Tuesday.

That would be above the $223 billion in buybacks recorded in the fourth quarter of 2018, which was a record, he said.

Share repurchases are seen as supportive for stocks in general. They decrease the number of a company’s shares outstanding, boosting per share earnings and driving down the price-to-earnings ratio, a key valuation benchmark.

Still, stock prices have gone up, and that’s impacting the number of shares companies can buy back, Silverblatt said.

The S&P 500, which hit a record high on Tuesday, is up about 23% for the year to date.

Strategists expect companies will continue to spend high levels of cash in 2022, a trend that should help to support stocks.

Goldman Sachs strategists wrote in a recent note that cash balances have surged in the last 12 months, and they are projecting S&P 500 buybacks to grow by 8% in 2022 after 50% growth in 2021.

Among recent big announcements, Exxon Mobil last Friday vowed to revive its long-dormant share repurchase program next year.

(Reporting by Caroline Valetkevitch; Editing by Stephen Coates)

Oil Rises On Demand Outlook Despite China Fuel Reserves Release

Brent crude futures settled up 99 cents, or 1.1 %, to $84.71 a barrel after hitting a session low of $83.03.

U.S. West Texas Intermediate (WTI) crude futures gained 84 cents, or 0.6%, to $84.05, having fallen to $82.74 earlier.

A Reuters poll showed that oil prices are expected to hold near $80 as the year ends, as tight supplies and higher gas bills encourage a switch to crude for use as a power generation fuel.

Oil rallied to multi-year highs last week, helped by a post-pandemic demand rebound and the Organization of the Petroleum Exporting Countries and allies led by Russia, or OPEC+, sticking to gradual, monthly production increases of 400,000 barrels per day (bpd), despite calls for more oil from major consumers.

The increase in OPEC’s oil output in October fell short of the rise planned under a deal with allies, a Reuters survey found on Monday, as involuntary outages in some smaller producers offset higher supplies from Saudi Arabia and Iraq.

OPEC+ is expected by analysts to stick to the 400,000 figure at its Nov. 4 meeting, with members Kuwait and Iraq in recent days voicing their support for it, saying those volumes were adequate.

“We feel that their position will be one where the status quo will be maintained while a ‘wink and a nod’ will be provided in accepting violation of quotas should Brent values gravitate back up into new 7-year high territory,” said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.

U.S. President Joe Biden on Saturday urged major G20 energy producing countries with spare capacity to boost production to ensure a stronger global economic recovery, part of a broad effort to pressure OPEC+ to raise supplies.

Prices rose despite China saying in a rare official statement that it had released gasoline and diesel reserves to increase market supply and support price stability in some regions.

Exxon and Chevron are looking to add drilling rigs in the Permian shale basin after sharply cutting crews and output in the region last year, the companies said on Friday.

(Additional reporting by Ahmad Ghaddar, Yuka Obayashi in Tokyo; Editing by Muralikumar Anantharaman, Mark Potter and Alison Williams)

Exxon Posts Strongest Results Since 2017, Vows to Resume Share Buybacks

The higher profit follows several years of lackluster returns and heavy spending at Exxon, and as agitated shareholders this year voted to put three new directors on the company’s board due to dissatisfaction with its direction.

For more than a decade, Exxon had been once the largest U.S. corporate repurchaser of shares before suspending the practice in 2016.

“The upside surprise was the buyback program, no one was expecting it this soon,” said equity analyst Paul Sankey at Sankey Research.

The nation’s largest oil and gas company reported net income of $6.75 billion, or $1.57 per share, in the third quarter, the highest since the last quarter of 2017. That compared with a loss of $680 million, or 15 cents per share, in the year-earlier period.

REFINING GAINS

Exxon’s $1.58 a share profit beat the Refinitiv estimate by two cents. Third-quarter results reflected the highest refining profit in at least two years, soaring natural gas prices and energy shortages that pushed oil to a three-year high. Crude prices have continued to climb to near a seven-year high.

Exxon shares finished up 16 cents at $64.49 as some analysts expressed disappointed in the size of buyback program.

The company’s three businesses delivered higher returns from past cost-cutting restructurings and as the global economy emerges from the coronavirus pandemic, Chief Executive Officer Darren Woods said.

The benefits of those changes “are manifesting themselves,” Woods told analysts on a conference call, adding that Exxon expects to “deliver the same growth in earnings and cash flow as our pre-pandemic plans” that called for $30 billion in annual profit by 2025.

That outlook will allow the company to resume buybacks starting next year under a plan to spend up to $10 billion on share repurchases through 2023, Exxon said.

“The macro winds are at Exxon’s back,” said Stewart Glickman, energy equity analyst at CFRA Research.

CARBON EMISSIONS CUTS

In 2016, Exxon cut share repurchases amid weak results, saying it would buy shares only to offset dilution from executive pay plans as opposed to returning cash to shareholders.

In the decade prior, Exxon spent $210 billion on its own stock, more than any other U.S. company in that period.

A day after Exxon’s Woods appeared before Congress to address the company’s previous dismissal of global warming, Exxon said it would increase spending to cut its carbon emissions to $15 billion between 2022 and 2027.

Profits in oil and gas soared in the third quarter on the strength of international demand, reaching nearly $4 billion compared with a $383 million loss a year ago. Chemical profits slipped from last quarter’s high but more than tripled from the same period last year.

The company said it will benefit in the fourth quarter from higher oil and gas volumes, increased European seasonal gas demand and the $1 billion sale of its UK North Sea assets.

Exxon shares are up than 50% this year, as earnings bounced back from last year’s historic loss, but remain below where they traded in early 2020. This year’s profit has allowed the company to repay about $11 billion in debt taken on last year to cover its dividend.

Earlier this year, Exxon spent heavily on a proxy battle waged by a hedge fund unhappy with the oil and gas company’s strategy. The fund, Engine No. 1, was successful in convincing enough shareholders to vote for three new directors to serve on Exxon’s board.

(Graphic: Exxon, once a buyback giant, to resume the practice: https://fingfx.thomsonreuters.com/gfx/ce/dwvkrawbapm/Pasted%20image%201635518149103.png)

(Reporting by Arathy S Nair in Bengaluru; Editing by Shounak Dasgupta, Steve Orlofsky and Paul Simao)