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Getting Booted from the Dow Shouldn’t Be a Problem for Exxon Mobil Shareholders

InvestorPlace logo InvestorPlace 9/10/2020 David Moadel
a red and white sign: Exxon Mobil Stock Is on the Way Back, but It Will Take Some Time © Source: Jonathan Weiss / Exxon Mobil Stock Is on the Way Back, but It Will Take Some Time

Out with the old, in with the new. That seems to be the theme as comparatively ancient oil giant Exxon Mobil (NYSE:XOM) was recently replaced by technology-focused Salesforce (NYSE:CRM) in the Dow Jones Industrial Average. With this changing of the guard, you could almost hear a sigh of disappointment from Exxon Mobil stock holders.

a sign above a store: Exxon Mobil Stock Is on the Way Back, but It Will Take Some Time © Provided by InvestorPlace Exxon Mobil Stock Is on the Way Back, but It Will Take Some Time

There’s an odd irony here. The Dow is sometimes considered to be an obsolete index. At the same time, it appears that Exxon Mobil might be getting kicked out of the Dow because Salesforce is more in vogue.

In other words, as the Dow fights for relevancy, it’s possible that the folks who manage the index are just trying to keep up with the times. Indeed, maybe there’s nothing so bad about Exxon Mobil that it should cause investors to dump their shares.

A Closer Look at Exxon Mobil Stock

Momentum-obsessed traders probably won’t like the direction in which Exxon Mobil stock is heading. After a recent peak in early June at the $55 area, the shares have been trending downwards and the bears appear to be in control.

The oil price has been trapped in a range, so that is a likely contributing factor as Exxon Mobil stock remains stuck in a rut. On the other hand, value-focused investors might view this situation differently.

For instance, they should appreciate Exxon Mobil stock’s very reasonable trailing 12-month price-to-earnings ratio of 23.28. And if they like to collect dividend payments, then income-oriented investors should be glad to know that this stock offers a generous forward annual dividend yield of 8.9%.

So, not all of the data surrounding Exxon Mobil stock is bad. Let’s drill down to see if there are more reasons to hold on to the shares despite the Dow’s rejection.

A Giant Slims Down

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It’s not unexpected that Exxon Mobil would seek to reduce its expenditures, with the oil price failing to break out and the novel coronavirus suppressing energy-product demand.

And indeed, a leaner, fitter Exxon Mobil is just what the doctor ordered. It’s highly encouraging to see that the company has managed to reduce its capital expenditures budget by roughly $10 billion, or 30%, this year.

In addition, it appears that Exxon Mobil is taking workforce reduction seriously. It’s not enjoyable to report people potentially losing their jobs, but it’s part of the process as Exxon Mobil seeks to regain its footing.

Thus, the company is in the process of reviewing multiple possible areas of headcount reduction across Exxon Mobil’s global operations. Evidently, Australia is an early target in the company’s reduction efforts. It’s not hard to imagine that the United States may be another target at some point.

Tech Integration

Exxon Mobil is out of favor while more tech-friendly companies like Salesforce are beloved by the financial community.

It’s a mistake, however, to assume that Exxon Mobil is completely in the dark when it comes to technology. In fact, there’s a link between Exxon Mobil and e-commerce juggernaut Amazon (NASDAQ:AMZN).

Consider the convenience of being able to pay for gasoline simply by saying, “Alexa, pay for gas.” This isn’t science fiction. It’s a feature that’s currently available at over 11,500 Exxon and Mobil gasoline stations in the United States.

All you have to do is say those four magic words to initiate the payment process. Next, Alexa will confirm the station location and the pump number. Finally, Alexa will activate the pump on your behalf.

This has been set up to work with Echo Auto and through Alexa-enabled vehicles. It’s even set up to work with the Alexa smartphone app.

Clearly, having an Amazon connection is a smart move for Exxon Mobil. And, it’s proof that this old oil company can learn some new tricks.

The Bottom Line

Being kicked out of the Dow isn’t the end of the world for Exxon Mobil. Still, some traders might misconstrue this event as a sign that Exxon Mobil is obsolete.

Nothing could be further from the truth. Exxon Mobil stock holders should know that the company is working towards becoming leaner and more tech-enabled. So, maybe this fossil-fuel giant isn’t such a dinosaur after all.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.


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