Much has been made of Berkshire Hathaway’s recent sale of Exxon Mobil ($XOM) in recent days — with Buffett himself stepping up to defend the company as a high-quality industry leader. From a long term investing perspective, some of the integrated oil companies look compelling but may admittedly have some tough sledding for the next 18-24 months if current EPS forecasts are credible and materialize.
Because yes, Virginia, stock prices do ultimately follow earnings.
Exxon Mobil (XOM) can also be an example of using a different valuation method (P/CF) for building a return forecast.
In this case, do a regression-based sales forecast for 5 years from now (~460,000).
The cash flow margin (cash flow/sales) is quite consistent at 13%.
The price-to-cash flow (P/CF) is also very consistent at 8.0×.