Bill Cara: Black gold at XOM, Mon., Jan. 30, 2006, 8:36 AM

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January 30, 2006

Black gold at XOM, Mon., Jan. 30, 2006, 8:36 AM

Exxon Mobil has posted a remarkable 4Q05. Revenues came in at $99.7 billion whereas Value Line had estimated $84.6 billion. And whereas Value Line had forecasted profits from continuing ops of $1.33, Exxon Mobil produced a profit of $1.65 this quarter.

(XOM) (XOM) (Here is the Dec. 16 Value Line report on XOM: next one is due Mar. 17)

As I see it, based on 2005 earnings of $5.32 and an average PE multiple of 13.2 (less than VL's 13.5), XOM has a fair value of about $70. XOM, which is the industry's 800-pound gorilla, closed last week at $61.29. So, I anticipate higher prices in the stock and in the sector.

And that makes me a happy camper as I'm sector over-weighted as you know. You might not like the price at the fuel pump (and who does?), but as a trader of the stock you have to love the corporate cashflow, and this earning's report.

For readers who follow my approach to trading, you know I got out of XOM many months ago. And although I give the stock a "fair value" target of $70, in order for me to want to go back in, I'd like to see a potential 25 pct total return within a year. With dividends, that goal could be accomplished if I bought in at say 56 and sold at say 70 within say four to five quarters.

And you know that to achieve that result, I would wait for the RSI (7) on the Weekly and Daily price data charts to fall to close to the 30 level, whereupon I would begin to write put options.

As to the current picture, you have to wonder why traders took this stock down sharply at the close on Friday though. (See the 5-Min chart)

Do you think it was because they wanted a pop at the open today?

Posted by Posted by Bill Cara on January 30, 2006 08:36:05 AM | Category: 10 Energy

Discourse

Excellent advice on "How to Trade" such a situation. It works and can only be conceptualized through actually doing this on paper. The writing puts part isn't for everybody and will not suit most non-margined accounts. However, you can still do well without the put writing.

Present take is that there are one too many market favorites in an overbought condition. RSI's in the 68-84 range and driving onward. Looking for a deep n bloody down day to put capital to use. Sticking more to small-medium cap than large players like XOM w/ quarterly earnings growth of 30% and above.

Posted by: dinov at January 30, 2006 9:21 AM [link]