Motley Fool: Gushing about oil

ExxonMobil (NYSE: XOM) is suffering through a disrupted oil market, and it’s going to be some time before supply and demand are brought back into some form of harmony. This makes profitability nearly impossible in the near term for most oil stocks.

Yet over the longer run, ExxonMobil is well-positioned to thrive. Remember that this is an integrated oil giant that’s not solely dependent on drilling and exploration. Yes, drilling is what offers the company its greatest growth prospects. But this is a company with plenty of cash flow potential from its downstream operations, such as refining and petrochemical operations. For the foreseeable future, ExxonMobil is expected to lean on its downstream segment, which should benefit from weaker crude oil prices.

ExxonMobil has the size and scale to optimize its production costs – and the luxury of cutting back on capital expenditures to control cash outflows during a period of unprecedented demand weakness. Recently, the company cut $10 billion from its capital spending forecast for 2020. Management plans to keep the company’s dividend intact for now, but that could change. Still, even if the dividend were reduced to a third of its recent level, it would offer a reasonable payout – its dividend recently yielded 7.7%.

ExxonMobil’s balance sheet is solid, too, with a debt-to-capital ratio better than most of its peers. The company is likely to emerge from the pandemic economy in good shape.

Ask the FoolQ: Where can I see a list of a company’s board of directors? – J.L., Tacoma

A: Go to the company’s website and look around for a link or tab that says “About” or “Company.” There you’ll often find photos and brief descriptions of the board. You can also just call the company to inquire – ask for the investor relations department when you call.

Another source is the company’s annual report. The 10-K reports and proxy (“DEF 14A”) statements that public companies file with the Securities and Exchange Commission also typically include board members, along with their compensation and stock ownership. Visit SEC.gov and search under “Filings.”

Q: I see that Hertz has filed for bankruptcy protection and its stock has crashed. Does that make it a good buy now? – H.W., Detroit

A: Absolutely not.

When a company files for bankruptcy protection, it typically gets a chance to reorganize itself and try to pay off its creditors as much as possible. Hertz might sell some of its fleet to pay off holders of its secured debt. It might negotiate to pay holders of its unsecured debt a lesser sum, perhaps also offering them shares of newly minted stock.

Shareholders of its common stock won’t be that lucky, though. In most bankruptcies, these folks typically end up with little or nothing, with their shares of stock essentially discontinued. When companies emerge from bankruptcy, as many of them do, they may still have shares of stock you can buy – but those will be newly minted shares, leaving the old ones worthless (or near-worthless).

Companies in or facing bankruptcy are in trouble, and are best avoided.

My dumbest investmentMy dumbest investment was buying shares of InvenSense, maker of motion-sensing chips, for around $25 each because – and this is the entirety of my reasoning – it was a supplier for Apple, which sells a lot of phones. I did no other research. It dropped, and I immediately sold.

Then I bought into GT Advanced Technologies for the same reason at $20, doubled down at $10, and eventually sold my shares for pennies. I learned to do my own research. It’s worked out nicely. – Steven M.W., online

The Fool responds: Your reasoning was great – as a starting point. Apple has sold over 2 billion phones, and that has driven profits for many of its suppliers. But it’s just a starting point. When a company has one or two main customers, it has less bargaining power with them – and Apple accounted for the majority of InvenSense’s business. Also, InvenSense was hoping to get its chips into the Apple Watch, but that didn’t happen. InvenSense ended up being acquired by the Japanese company TDK in 2017.

Meanwhile, GT Advanced Technologies, a maker of sapphire glass, had been struggling financially when it inked a deal with Apple that was favorable to Apple. It hoped to have its offerings included in the iPhone 6, but that didn’t happen; it ended up filing for bankruptcy protection in 2014. Tread carefully if your portfolio prospects have few customers or shaky finances.