Why Warren Buffett Should Buyback Exxon Mobil Corporation Stock Now

In 2015, famed investor and Chief Executive Officer of Berkshire Hathaway (NYSE:BRK-A) Berkshire (NYSE:BRK-B) disposed his entire $3.7 billion stake in integrated oil and gas giant Exxon Mobil Corporation (NYSE:XOM). 

There was speculation about the main rationale behind the liquidation of Berkshire’s holdings in the oil giant. One of the obvious reasons is that the prospects of the company over the next few years remain uncertain, considering the continued slump in oil prices. Further, it did not help that the company announced that it would cut down on its spending to preserve its cash flow amid continued low prices. This short-term capital allocation strategy is also in line with industry norms.

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It was only in a subsequent interview that Warren Buffett explained his reason for selling shares in the company. He still believes that the company remains a solid investment in the long-term despite the near-term blips in its profitability due to the oil price slump. However, Mr. Warren Buffett said that he might have other uses for the money, which would have a better risk-adjusted return on investment.

Exxon Mobil Is the “Steady Eddie” of Oil Giants

The company has one of the strongest historical track records in profitability and cash flow generation. It should also be noted that the company possesses a pristine balance sheet that allows it to be flexible during a crisis. Exxon has also handsomely rewarded investors in terms of gains, notwithstanding the consistent dividend payout.

However, these factors have not calmed the markets, as Exxon has continued to post lower revenue and profitability figures in the recent five fiscal years. From 2011 to 2015, sales have declined from $467 billion to $259 billion. Consequently, earnings per share have been sliced in half from $8.43 in 2011 to $3.85 in 2015. These figures were  mainly driven by lower oil prices in the recent years.