In the wake of the latest market correction I would recommend investors revisit Exxon Mobile (XOM) and Chevron (CVX), if they have given the slightest thought of buying either company. Both major oil producers are in stable industries with very deep entrenched businesses around the globe. Energy is needed by everyone in every country and these companies have the capital and network to provide what is demanded.
I particularly like XOM & CVX right now because they are selling at a discount compared to where they were at a little over a month ago and they could appreciate handsomely, even though they are value stocks. If you assume between now and sometime in 2012 the global economy will go one a run (short or long term), we are likely to experience a jump in oil prices.
For the last 10 years the U.S. amount of oil consumption has remained relatively flat. Today the main driver of oil demand resides in the emerging markets, such as China, India, and Brazil. These large developing markets may not use a tremendous amount of energy per person, but a slight increase can have a huge impact because of their sheer volume.
An increase in global economic activity would likely lead to pressure on energy prices, particularly oil. This would then lead to futures contracts being quickly bid up and we’d shortly see a relapse of what we experienced earlier this year with oil briefly shoot up near $120 a barrel.
If you want to look at these companies as a potential trade or a long-term investment, I believe either will work for you. The companies both have a strong track record of growing their dividend amounts annually and both will respond favorably to oil price spikes.
Ultimately, an investment in either company is a bet on global growth continuing its course into the future. Limited resources faced with increasing demand eventually will lead to hire prices. If you don’t have exposure to major energy players in your portfolio, now is a good time to take a serious look at potentially establishing a position.