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So What’s So Great About Record Profits?
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Tuesday, 05 February 2008
By Andrew Gordon
ExxonMobil (XOM) reported record profits for the fourth quarter and the year.  Its sales revenues for the year beat the GDP of 120 countries.  And it easily beat analysts’ expectations for the quarter.
So, naturally, its stock fell by a half a percent.  What the heck is going on?

   1. Oil is a notoriously cyclical sector.  And investors suspect that demand has peaked.

   2. Without record prices, there would be no record profits.  With the U.S. economy slowing, prices are in the high $80s after touching $100 late last year.  When the winter is over, they should repeat past years and go down more.

   3. XOM’s oil production fell last quarter.  The oil majors are having trouble keeping up with production and reserves.  Oil is much harder to find.  And governments are driving much harder bargains.

Investors are nervous about the future.  Rising oil prices (the yellow line) in late 2007 couldn’t elevate the share prices of XOM (red line) and Chevron (CVX, green line).

That blue line belongs to Sasol (it happens to be in my INCOME portfolio).  It was up three percent on Friday.  Sasol is in a much better place than ExxonMobil or Chevron.  And I’m not talking about its location in South Africa.  It supplies the fast-growing Asian economies.  And it has proven technology to convert coal and gas into liquid fuel.  That’s why it’s in a better place.

Sasol has the capability to resist the oil cycle’s next down phase.  It’s exactly the kind of company you should be looking for.

P.S.  To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it


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