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An Old But Apt Market Cliché Suggests Buying XOM

Oil Barrels

Among the multitude of market clichés, perhaps the most tired of all is the old axiom that traders and investors should buy low and sell high. It is a classic truism, but does have the advantage of reminding us that in certain circumstances stock moves are destined to be temporary and can provide contrarian opportunities. All the evidence and frequently repeated history suggest that that is the case now with the drop in big oil stocks, and XOM in particular.

Successful investing in the energy sector, and especially in integrated oil company stocks, is about understanding the cyclical nature of markets. The sector responds in the short-term to fluctuations in the price of oil and to broader stock market gyrations, but integrated, multinational oil companies are set up to survive through such things and to use the downturns as opportunities to consolidate and invest to prepare for the eventual recovery. As investors, we should do the same.

Timing still matters, of course, but when these stocks are close to significant recent lows, as many of them are right now, it is not a time to fear further declines, but rather a time to add to holdings. After all, even as oil has plummeted, Exxon Mobil (XOM) has continued not only to make money, but also to maintain, and even increase, the dividend paid to shareholders. Despite that, the stock has done this…

(Click to enlarge)

Now I understand that markets are forward discounting mechanisms and…

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