Friday, October 9, 2020

The Morning Call---At least look at Exxon


The Morning Call




The Market




            Crude surges after an OPEC official says that the worst is over in the oil market.



                As we all know, the recession has taken a toll on energy demands.  Plus, the economy is unquestionably moving away from fossil fuels as its primary energy source.  So, the bad news is out there for all to see.  OPEC is now saying that the worst is over.  But keep in mind that (1) these guys have a long history of lying and (2) if the economy stumbles, then so will oil demand.  With that said, I don’t know how much more bad news can be discounted in oil company stocks. 


As an illustration, this is a 10 year chart of Exxon, one of my holdings that I added to recently, showing just how much punishment it has endured.  To give you an idea of the order of magnitude of its stock price decline: the horizonal green line marks a 50% decline  in its stock price from its high.  The yellow horizonal line is the same percentage decline off XOM’s most recent high as occurred in the 2009 selloff from its 2008 high. 


Of course, there is a reason for investor selling.  In addition, to the macroeconomic factors mentioned above, its dividend ($3.48/share) is not covered by earnings (2020 -$.40/ share; 2021 +$1.75/share)---though it is by cash flow (2020-$4.30; 2021 $6.60).  And the stock yields 9.9%.  And for whatever it is worth, management has vowed to not cut the dividend. 


As a contrary opinionist, this is too tempting to me not to have a position.  But to be clear, this stock is not for little old ladies in tennis shoes.  Any purchase should be small relative to the overall size of one’s portfolio and done with the knowledge that a dividend cut would result in further downside.






              The Economy






August Japanese household spending rose 1.7% versus predictions of +3.2%; cash earnings fell 1.3% versus -0.9%.


The August UK trade balance was +L1.4 billion versus estimates of +L0.6 ; industrial production was up 0.3% versus up 2.5%; GDP was up 2.1% versus +4.6%.


The September Chinese Caixin services PMI came in at 54.8 versus forecasts of 53.0; the composite PMI was 54.5 versus 54.0.




                          Some analysis of the house’s antitrust report aimed at big tech.



            The Fed


              Fed bond buying activity has been nil for two months.



            The coronavirus


              Excessive risk aversion.




                           Pelosi decides not to support independent airline bailout bill.






              US ag exports to China finally starting to increase.



    News on Stocks in Our Portfolios


            Bitcoin jumps after Square investment.



What I am reading today



            Habits in times of turmoil.



                Using physics to create cooling systems without using electricity.




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