Exxon's natural-gas buy looking smart now
The energy giant's acquisition of XTO, once considered a boneheaded move, is now garnering analyst enthusiasm. Will other oil companies follow the lead?
There are a gazillion reasons Exxon Mobil (XOM) should be going up. It's showing some growth again. It is re-exerting itself as the best, most disciplined integrated oil company. Oil is spiking because of Middle East tension.
But the main reason I like it for the rally is that the analysts actually have cottoned on to the XTO acquisition. Exxon's management got a boatload of questions about it -- in fact it dominated as a topic -- and made you feel like it was a stroke of brilliance -- not the failed overpay that had been the rap, as XTO is natural gas and natural gas was at its peak when Exxon made the purchase.
This is a very significant change. Part of the newfound love for Exxon is that the company has got some serious growth -- maybe not earnings but growth -- from this acquisition. To me, that means that others, notably Chevron (CVX), Shell (RDS.A) and Occidental (OXY), are watching, and that means I expect a slew of similar acquisitions now that Exxon is no longer being hectored about it.
I think Chesapeake Energy (CHK) is worth a great deal here, much more than it is selling for, as I said earlier in these cyber-pages. But so is Devon Energy (DVN). So is Range Resources (RRC). So is Southwestern Energy (SWN). Any one of these could be picked off by a major and now be blessed, because Exxon is no longer in the doghouse.
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Sure, some of these have run. But they are nowhere compared with where they could be. Witness that Southwestern was one of the 10 worst-performing stocks in the S&P last year, and I said on my show that it was open to be bought.
This group is moving without the fuel itself moving. What happens if it ever does? What happens if the big dogs get the message from Exxon's stock? What happens if the Chinese take a big swing at the Marcellus assets of National Fuel Gas (NFG), which reports later this week? What happens if, post the noncontroversial second CNOOC deal with Chesapeake, CNOOC buys a major?
I think there is a huge amount to run here. For all of them.
Given the plaudits Exxon is now receiving after what was perceived to be a boneheaded acquisition of XTO not that long ago, I think these all have much, much more to run.
At the time of publication, Cramer was long SWN.
Follow Cramer's trades for his Charitable Trust.
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