How would Graham be viewing the energy and commodities areas these days? Anyone see values emerging there? Regards, M2
Graham explictly stated that stocks and bonds were the extent of his investment expertise, and offered no advice regarding other investment vehicles. Thus, to my knowledge, he had nothing to say about commodities as such. However, some companies are indirect commodity hedge plays, as they both own them and process them. Thus, a fall in commodity prices decreases the value of their assets, but also decreases the cost of their inputs -- and vice versa.
I cannot say that Graham would have favored any stock in today's heady Market. However, his most basic formula for the intelligent investor was to divide a portfolio, 50-50, between stocks and bonds; and to readjust as necessary to prevent there being more than 75% of the one, and less than 25% of the other.
So, assuming that Graham would allow for a portfolio comprised of 25% common stocks, even in this Market, I don't think he would violently object to Exxon being part of that 25%. Exxon's current p/e is around 24 or 25, and therefore, no great bargain. Nevertheless, there is much to be said for XON with which Graham would have found favor:
1. XON has paid dividends continuously since 1882. (Most of today's high-fliers have never paid any.) It is fashionable these days to point to dividends as evidence of a management's "failure" to find more profitable ways to employ the money. From Graham's point of view, there was something to be said for the money being in the shareholders' pockets instead of burning a hole in managements' corporate pockets.
2. Exxon makes money when the price of oil is $11/bbl and when its $35/bbl.
3. Exxon makes money in war and in peace, in boom and in bust. Sometimes its profits rise, sometimes they fall. Though I don't have the records in front of me, I doubt that Exxon has ever lost money, year-over-year, in its century and a quarter of corporate existence. There aren't a lot of companies of which the same could be said.
Exxon's CEO, in a recent television interview, claimed that Exxon had provided its shareholders with 20%+ annualized returns over the course of the entire 20th Century.
In my view, a very conservative strategy would be to dollar-cost-average into XON, as one's only holding, for the next 20 to 30 years. But, that's just my opinion -- Graham, of course, would not have agreed with a one-stock-portfolio strategy.
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