Esteemed value investor Warren Buffet has exited his investment in Exxon Mobil Corp (NYSE:XOM), selling Berkshire Hathaway’s $3.7 billion stake in XOM. We look at why he may have done this to help you decide if XOM is a quality investment.
No official statement have been made from Buffet and Berkshire as to why they have sold Exxon Mobil (NYSE:XOM), however analysts have speculated that it may just be a case of Buffet not being so keen on energy with the current depressed oil prices and no sign in the near future of a rise in the oil price.
Further, if we look at XOM from a fundamental perspective the Exxon Mobil is trading on a forward price to earnings (P/E) multiple of 17.08. This is at par or higher than the market average and even higher than industry peers in the oil sector. So from that perspective for a value investor such as buffet, Exxon just isn’t offering it. Further to this, analysts are expecting a contraction in growth of -1.38% annually for the next 5 years. Again looking several periods ahead, Exxon is still not offering any value to investors, again another reason why Buffet may not be keen on the stock and feel there may be better alternatives to park cash into. It may also give an idea into Buffet’s opinion on where the oil price is headed in the near future, i.e. not higher, as certainly if it is to shoot back up so will the price of XOM.
Exxon Mobil (NYSE:XOM) closed at $91.01 in trading yesterday, down $2.04 or 2.19%. Further to this in February the stock was downgraded by analysts at Argus and Scotia Howard Weil. We would suggest that this stock is only a buy for traders who believe that the price of oil will rise again in the not too distant future.