Investing in energy stocks like Exxon Mobil (NYSE:XOM) is all about your time horizon. In the near term, oil and natural gas prices are likely to be volatile, making it difficult to determine which way XOM stock will trend.
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By the end of 2022, traditional energy stocks could start to be seriously damaged by the transition to electric vehicles.
But in the medium term, oil and natural prices will likely be elevated, making XOM stock ideal for investors with a time horizon of five to nine months.
Expect Short-Term Volatility in XOM Stock
For the time being, oil and natural gas prices seem to be largely determined by the Russia-Ukraine conflict.
While it’s impossible to know exactly how the situation on the Russian-Ukrainian border will unfold, I think a full-scale invasion of Ukraine is unlikely. Russian President Vladimir Putin doesn’t have enough troops on the border to accomplish that goal and isn’t interested in a long-term occupation of the entire country. Plus, Ukraine President Volodymyr Zelenskiy recently joked about a Russian invasion, suggesting he’s not taking the notion very seriously.
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Therefore, what we’re most likely to see over the next month or two is a continuation of the status quo, very limited incursions into Ukraine by Russian troops, or some sort of deal between the West, Ukraine and Russia.
In the first two scenarios, it’s hard to tell how the West will react and the extent to which energy prices will be affected. If, on the other hand, a deal is made, energy prices will likely drop significantly, taking XOM stock along for the ride.
Medium-Term Strength Represents the Sweet Spot
Within a month or two, the Russia-Ukraine conflict will probably no longer be in the headlines or meaningfully affecting energy prices. Everyone will likely understand by then that a full-scale invasion is not imminent.
At that point, investors will be able to buy XOM stock without worrying that energy prices will tumble shortly thereafter.
Furthermore, with the coronavirus pandemic (hopefully) in the rearview mirror, we’ll see the mother of all summer driving and travel seasons in much of the world. Such a development, of course, would be bullish for Exxon and XOM stock.
Long-Term Threats to XOM Stock
The EV revolution poses a major long-term threat to Exxon Mobil and its peers.
By 2025, more than 35% of the automobiles sold in China will be “new energy vehicles,” i.e., fully electric EVs or plug-in hybrid vehicles, the CEO of Chinese EV maker Xpeng (NYSE:XPEV) said in October.
In the EU, the situation is potentially even more dire for oil companies. Demand for EVs is projected to overtake that of internal combustion engine vehicles in Europe by early 2025, according to a study by Element Energy.
It’s very possible that starting in late 2022, the market will begin pricing the EV threat into XOM stock.
The Bottom Line on XOM Stock
The Russia-Ukraine conflict is fluid and could easily result in energy prices dropping swiftly and dramatically over the next month or two. Therefore, unless and until such a scenario unfolds, I do not recommend buying Exxon’s shares or those of its peers during that period.
Investors with a time horizon of around five to nine months should consider buying XOM stock either on a dramatic pullback caused by a resolution of the Russia-Ukraine conflict or after the situation is no longer in the news and affecting energy prices. By following that strategy, you should be able to profit from the strong demand for oil and natural gas that will likely arise starting in May.
But, due to the threat to oil demand from the transition to EVs, I think investors should sell the shares by the middle of the fourth quarter of this year.
On the date of publication, Larry Ramer was long XPEV stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.
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