The Fall Of Tesla And The Rise of Exxon Amid The Energy Crisis

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Growth stocks have been thoroughly hammered this year, with high inflation and rising interest rates pinching growth equities of all stripes. But few stocks exemplify the dramatic shake-up at the top, like leading EV maker Tesla Inc. (NASDAQ: TSLA). TSLA stock has tanked 69.5% in the year-to-date, wiping off a staggering $877 billion from its market cap. In comparison, the S&P 500 has declined a more modest 19.7% over the timeframe. Tesla has gone from being the fifth most valuable public company and now ranks just thirteenth with a market cap of $385 billion. Tesla’s woes are well documented, including Musk’s Twitter takeover and related distractions; worries that high inflation and rising interest rates will dampen consumers’ enthusiasm for EVs, as well as investor jitters about growth assets. TSLA shareholders are furious at CEO Elon Musk, The Wall Street Journal reports, for his Twitter antics and tomfoolery, which has led to several downgrades for the stock. Meanwhile, hordes of customers are canceling their Tesla orders, “His personality is absolutely tanking the Tesla brand. I’m looking forward to having an Elon-free existence,’’ a biotech exec with a Model S lease has told CNET. “There is no Tesla CEO today,” tweeted Gary Black, a hedge fund manager with ~$50 million worth of TSLA stock told Futurism.

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But Tesla is hardly alone here: most EV stocks have had a year to forget with rising costs, supply chain issues, increasing competition, and the threat of a potential recession causing many to sell off heavily.

Surprisingly, some Wall Street pundits have not given up on TSLA stock and are urging investors to use the selloff as a buying opportunity. To wit, Citi has tapped TSLA as a bullish contrarian stock for 2023, while Baird analyst Ben Kallo still sees Tesla as a “Best Idea” stock in 2023. Meanwhile, Morgan Stanley says Tesla could extend its lead over its EV rivals in the coming year, and has cited “valuation, cash flow, innovation and cost leadership” as key reasons to maintain a Buy-equivalent rating. Meanwhile, famed contrarian investor Cathie Wood, known for betting big on former growth stocks as they fall, recently loaded up on more than 25K shares of the EV giant.

In sharp contrast, things could not have gone differently for Tesla’s biggest fossil fuel rival, Exxon Mobil Corp. (NYSE: XOM). Exxon Mobil has enjoyed the biggest rise in the S&P 500 this year, with the energy giant jumping almost like technology stocks did in the tech boom thanks to high oil and gas prices triggered by the energy crisis. XOM shares have soared 72% this year, adding $190 billion to the company’s market value. Exxon’s increase in market value surpasses any company in the S&P 500, making Exxon Mobil the eighth most valuable stock in the S&P 500. That’s a remarkable jump considering that it only ranked 27th most valuable in the S&P 500 a year ago. Exxon was the most valuable S&P 500 company in 2011 until Apple Inc. (NASDAQ: AAPL) surpassed it in 2012.

Whereas Citi has picked XOM as one of its bearish contrarian stocks for 2023, the stock is viewed favorably by most Wall Street analysts, as evidenced by its $118.89 average price target, good for a 10% upside. The energy sector in general is expected to outperform the market again in 2023, and XOM should be just fine, considering it’s still cheap with a PE (Fwd) of 7.9. Back in October, Exxon raised its quarterly dividend by $0.03 per share to $0.91 per share marking the company’s 40th straight year of increasing its dividend, keeping it in the elite group of Dividend Aristocrats. XOM shares now yield 3.3%.

The outlook for the energy sector remains bright. According to a recent Moody’s research report, industry earnings will stabilize overall in 2023, though they will come in slightly below levels reached by recent peaks. 

The analysts note that commodity prices have declined from very high levels earlier in 2022, but have predicted that prices are likely to remain cyclically strong through 2023. This, combined with modest growth in volumes, will support strong cash flow generation for oil and gas producers. Moody’s estimates that the U.S. energy sector’s EBITDA for 2022 will clock in at $623B but fall slightly to $585B in 2023. 

The analysts say that low capex, rising uncertainty about the expansion of future supplies, and high geopolitical risk premium will, however, continue to support cyclically high oil prices. Meanwhile, strong export demand for U.S. LNG will continue supporting high natural gas prices.

The combined dividend and buyback yield for the energy sector is now approaching 8%, which is high by historical standards. Similarly elevated levels occurred in 2020 and 2009, which preceded periods of strength. In comparison, the combined dividend and buyback yield for the S&P 500 is closer to five percent, which makes for one of the largest gaps in favor of the energy sector on record.

In other words, there simply aren’t better places for people investing in the U.S. stock market to park their money if they are looking for serious earnings growth.

By Alex Kimani for Oilprice.com

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