As oil prices have climbed to record levels, shares of energy producers and energy-service companies have surged. But stocks in those subgroups are notoriously volatile. For buy-and-hold, conservative investors, the best choice is integrated oil-and-gas king ExxonMobil, says Morningstar analyst Justin Perucki. Plus, he says, now's a good time to pick up the stock on the cheap.
Exxon is widely admired for its financial strength and operational efficiency. Its "massive scale and unrelenting pursuit of operational efficiency create a competitive advantage that the firm can bank on, no matter what path energy prices take," says Perucki. Other analysts, including Jacques Rousseau of Friedman Billings Ramsey, also like the stock in part because it isn't as sensitive to the price of oil as some of its peers, which should mean that the shares hold up better when oil prices decline.
But not everyone sings Exxon's praises. As the world's largest oil company, it takes a lot of flak for benefiting from high prices at the pump. Profits of $36 billion last year were the largest ever reported in a single year by a publicly traded company. Despite that number, Perucki notes, Exxon's stock was one of the worst performers in the energy sector in 2005. That's partly because of Exxon's enormousness and partly because the company is "always in the headlines" when the subject of gasoline prices comes up. "It's also not looked upon as the most environmentally friendly company," he adds.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Soaring gas prices are a hot political issue, as consumers worry how they'll deal with high gasoline prices throughout the summer and beyond. Congressional leaders are calling for investigations, and President Bush on Tuesday called on Congress to roll back tax incentives for energy companies, among other things. Although Perucki acknowledges that rolling back tax incentives or increasing taxes (such as through a windfall tax) is a risk that all oil companies face, he says that smaller firms, who are not as established and not as profitable as the giants, would be hurt the most. At any rate, he emphasizes that the political banter doesn't affect Exxon's underlying fundamentals. He does say that the recent political noise is part of the reason the stock (symbol XOM) is trading below its fair value, a figure he pegs at $75 per share. The stock closed Tuesday at just below $64.
Exxon focuses on profitability, and Perucki points out that its returns on assets are the envy of the industry. The company rewards investors through a large share repurchase program and has raised its dividend more than 20 years in a row. The stock yields 2.0%.
--Lisa Dixon
-
The Top 10 Side Gigs For Retirees In 2026Money is freedom in retirement; here’s how to earn more of it with a profitable side gig
-
3 Retirement Changes to Watch in 2026: Tax EditionRetirement Taxes Between the Social Security "senior bonus" phaseout and changes to Roth tax rules, your 2026 retirement plan may need an update. Here's what to know.
-
The 'Yes, And...' Rule for RetirementRetirement rarely follows the script. That’s why the best retirees learn to improvise.
-
If You'd Put $1,000 Into UPS Stock 20 Years Ago, Here's What You'd Have TodayUnited Parcel Service stock has been a massive long-term laggard.
-
How the Stock Market Performed in the First Year of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
Dow, S&P 500 Rise to New Closing Highs: Stock Market TodayWill President Donald Trump match his Monroe Doctrine gambit with a new Marshall Plan for Venezuela?
-
'Donroe Doctrine' Pumps Dow 594 Points: Stock Market TodayThe S&P 500 rallied but failed to turn the "Santa Claus Rally" indicator positive for 2026.
-
If You'd Put $1,000 Into Lowe's Stock 20 Years Ago, Here's What You'd Have TodayLowe's stock has delivered disappointing returns recently, but it's been a great holding for truly patient investors.
-
If You'd Put $1,000 Into 3M Stock 20 Years Ago, Here's What You'd Have TodayMMM stock has been a pit of despair for truly long-term shareholders.
-
Stocks Chop as the Unemployment Rate Jumps: Stock Market TodayNovember job growth was stronger than expected, but sharp losses in October and a rising unemployment rate are worrying market participants.
-
If You'd Put $1,000 Into Coca-Cola Stock 20 Years Ago, Here's What You'd Have TodayEven with its reliable dividend growth and generous stock buybacks, Coca-Cola has underperformed the broad market in the long term.
