Dear Darin, As much as I would just as soon not start another writing marathon over peripheral issues, I cannot let your characterization of the oil companies stand as you have entered it.
Of course I do agree with your view about the opportunism of our Governor or that of most government politicians. I am a libertarian. But you say, "The fact that Exxon-Mobil set a world record last year for the most profit ever for any corporation certainly helps his case."(Darin) Technically you are correct and the media has chimed the same remark and implication. If a large company is simply solvent and shows any profit--it is huge in comparison with my earnings. One needs a benchmark to determine if a huge profit is excessive. The profit amount is related to the size of the enterprise. But even that is not so simple. The book value of a company with depreciable assets might be low yet replacement values--huge. The assets of a company nearly out of business might be salvage or even a negative amount for their removal. But the profit should be considered to be a return on the full estimated market value of the going business. And that is simply the "stock market price." Each new "owner" or investor must pay this price for participation. That is expressed as a "price/earnings" ratio. The earnings per share are related to the price per share. Exxon Mobil currently sells for just 11.34 times earnings. Some companies and industries have high "P/E"s all the time. The future is anticipated by the market participants who value a company. Certainly the "high tech" stocks are noted for high "P/E"s. I have not checked the "average P/Es" of all Wisconsin publicly traded companies. But I would expect that the average is considerably above the 11.34 P/E of Exxon Mobil. Have all those Wisconsin public companies selling above that P/E made excessive gains driving up market prices? Even Harley Davidson---HOG, with all their troubles is selling at 17.62 times earnings. Or is the apparent market undervaluing of Exxon Mobil an indication of the temporary nature of the price spike. Exxon and Mobil have been stocks with P/Es generally between 13 times and twenty times annual earnings. But the nature of their business usually leaves earnings in a volatile state. A stock price of just eleven times earnings does not say much for the future. Roughly twenty-five percent of Exxon Mobil stock is institutionally held by banks and mutual funds. I would expect a major holding of the Wisconsin Investment Board, one of the Nation's largest institutional investors is in Exxon Mobil. Their market preferences determine the value of Exxon Mobil via the stock price. Obviously they do not think this firm is engaged in highway robbery at a price per share of eleven times earnings. If the Governor were really serious about unethical behavior or ill-gotten windfalls, wouldn't he instruct this giant State of Wisconsin Fund institutional investor to divest of such an enterprise. Maybe he should be asked that question. Eric Westhagen _______________________________________________ Bikies mailing list [email protected] http://www.danenet.org/mailman/listinfo/bikies
