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Author: kelbon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 41634  
Subject: Re: new to BMW method Date: 1/1/2013 10:02 PM
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I was just yesterday when I saw the chart thinking that it would be an excellent time to buy some XOM.

The chart tells you that XOM's stock price has, in spite of ups and downs along the way, more or less flat-lined since the end of 2007.

Extrapolating the future from past stock price behavior suggests that, sooner or later, XOM's stock price is likely to be higher. This isn't an unreasonable expectation given the proclivity of the stock market to rise over long periods helped by an inflationary wind at its back.

However, stock price history doesn't, and can't, tell you whether a company is fairly valued, under valued, or over valued at its present stock price. By one measure XOM's stock price is fairly valued given it's behavior as far back as the end of 2003. That metric is price to cash-flow.

Earnings have been erratic since 2008; plunging the next year and then climbing back out of he hole and reaching almost 2008 levels last year. Having said that earnings are not expected to best 2011's until at least 2014.

Given that earnings haven't been on a smooth uphill climb, as they were for the company from 2002 to 2008, and aren't expected to be again at least for the next couple of years, add to this that the shares have consistently traded at around 7.5 times cash flow over the last ten years then there's little reason to think that it is "an excellent time to buy some XOM."

On the other hand, the company's stock is trading at a reasonable valuation and paying a rising dividend. I would guess that it's appreciation potential is about average with the company's financial health way above the average company. Probably a good conservative bet, but not the screaming bargain a quick glance at Mike's chart might suggest.

kelbon
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