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Exxon earnings come out tomorrow (Tuesday), but while observers are anxiously awaiting the report, savvy investors should avoid the stock no matter what the report says.
Exxon Mobil Corp. (NYSE: XOM) currently trades at $84.86 and has fallen 6% in 2017.
Despite its struggles in 2017, Exxon stock has been a trendy pick since Donald Trump won the presidency.
XOM stock shot up 2.4% on Dec. 13, the day former Exxon CEO Rex Tillerson was announced as Trump’s nominee for secretary of state. And Forbes lists XOM as a stock that could double under President Trump.
But that does not make XOM a stock to buy ahead of earnings. Despite the recent hype, Exxon’s post-election surge hasn’t been enough for the stock to keep up with the Dow.
And there are some bigger reasons investors should avoid Exxon Mobil stock in 2017, even if its earnings report gives the stock another jolt of optimism.
Here’s why Exxon is a bad play this year and why a different oil stock will actually make you money instead…
Why Exxon Earnings Don’t Matter Right Now
Exxon’s earnings report should bring good news for the stock, but don’t read too much into it.
First, Exxon has beaten earnings estimates in four of the last five quarters, but the stock is down 9% since the start of 2015.
Second, any good news on the earnings report will be short-lived. According to Dr. Kent Moors, Money Morning‘s Global Energy Strategist, all Big Oil stocks should be avoided in 2017.
“Things will get even worse for Big Oil in 2017,” he said.
That’s because the oil majors are bogged down by huge and expensive “megaprojects,” according to Moors.
Trending: There Are Big Changes and Big Profits Coming to the Oil Sector in 2017
For example, the Exxon earnings report is expected to detail the company’s Jan. 17 purchase of $5.6 billion worth of shale oil sites in the Permian Basin. The deal will double Exxon’s holdings in the Permian Basin and is the company’s biggest purchase since 2010.
But this “megaproject” is exactly why the company is a bad stock to own in 2017.
You see, American shale oil producers have been reinvigorated by rising oil prices.
According to the EIA, 52% of American oil production is through shale oil, and U.S. oil production has increased 2.2% so far this year.
“Everyone is looking at U.S. shale producers now,” explains Moors.
But Exxon’s massive purchase is just playing catch-up with the more nimble companies already producing shale oil. And smaller American companies aren’t bogged down with other megaprojects all over the world.
That’s why investors should look for companies already taking advantage of the shale oil boom. And we have one that gained 34% in 2016 and is heading even higher in 2017…
This Oil Stock Will Beat XOM This Year
Magellan Midstream Partners LP (NYSE: MMP) is a $17.5 billion oil transportation company.
Magellan runs pipelines and storage facilities connecting oil producers to major hubs across North America. And Magellan is essential to the shale oil boom.
MMP runs pipelines from the Permian Basin in West Texas and the Bakken fields in North Dakota to the major hub in Cushing, Okla., and ports in the Gulf Coast and Atlantic.
That means as American oil production scales up, Magellan’s transportation services will grow in demand.
Magellan is already adding 1.7 million barrels worth of storage for 2017 as the company is expecting higher volume.
Magellan is smaller than Big Oil companies like Exxon, but it’s well-managed so it can take more profit without worrying about bloated expenses elsewhere. The company’s operating margin is an excellent 39.69%, which is nearly double the S&P 500 average of 21% and 23 times larger than Exxon’s of 1.7%.
Additionally, MMP pays a dividend yield of 4.29%. Big Oil firms are known for their large dividends, but Exxon’s dividend yield is only 3.56%.
While Magellan grew 34% in 2016, MMP’s earnings per share are expected to rise 8% in 2017, according to analysts surveyed by Yahoo Finance.
MMP currently trades at $79.77 a share.
While rising oil prices have helped American oil producers, another region is seeing a major boom, too. And it might be where you least expect. Moors says this region is the source of tomorrow’s energy profits…
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