Exxon Mobil Corporation (NYSE: XOM) reported annual results yesterday and they were impressive. Given oil’s flirtation with $80 last year, yesterday’s announcement that the company made $50 billion last year wasn’t a huge surprise. In fact, earnings were off by 4% in the fourth quarter, reflecting crude’s correction. But it does raise two interesting questions for us.
XOM is selling at US$4 below its 52-week high and at only 11 times estimated earnings for 2007. It has value. But does it have growth? It can increase sales by increasing production, or by benefiting from higher oil and natural gas prices. The stock price could increase if investors simply choose to place a higher premium on XOM’s record revenues… paying… say, 20 time for earnings instead of 10.
For whatever reason, investors choose to value oil companies conservatively. Perhaps that’s because the dynamics of the oil industry are well understood. The only real debate is over peak oil. But absent an element of mystery, the stock price is tethered pretty closely to reality.
And then you have the Chicago Mercantile Exchange (NYSE: CME), which settled yesterday at a lofty US$577 per share. The exchange reported that trading volumes were up 18% in January. This contributed to the stock itself moving up $14 on the day, or 2.5%. Our comment: CME *is* the house, in gambling terms. But now we have a new signal to look for. When open interest and trading volumes fall off on the exchange, we’ll know the party is winding up and liquidity is disappearing.
“Ergon Energy is making regional Queenslanders wait for up to a year just to have their power connected,” reports the Courier Mail. Combine a booming economy and shortage of skills and you get long delays in extended the power grid to its furthest reaches. We mention it because even in places where there is plenty of electricity being generated, getting it to the customers isn’t always easy. The day of having back-up power to supplement-and some day replace-the grid, is fast arriving.