Exxon Mobil Has New Record Profit

Exxon Mobil (XOM Quote - Cramer on XOM - Stock Picks) said Thursday that its third-quarter profit soared 58% from a year ago and reached nearly $15 billion, beating its previous record for the highest quarterly earnings from a U.S. company.

The oil and gas giant earned $14.83 billion, or $2.86 a share, in the latest quarter, up from $9.41 billion and $1.70 a share a year earlier. Excluding items, Exxon Mobil earned $2.59 in the most recent period. Analysts were looking for $2.38.

Revenue jumped to $137.7 billion from $102.3 billion last year. Production decreased 8% from the third quarter of 2007.

Exxon Mobil's results arrived on the same day Royal Dutch Shell (RDS.A Quote - Cramer on RDS.A - Stock Picks) said its own third-quarter earnings climbed 22% to $8.5 billion.

Chevron (CVX Quote - Cramer on CVX - Stock Picks), like Exxon Mobil a component of the Dow Jones Industrial Average, will post its numbers Friday.

Shares of Exxon Mobil were recently down 2.9% to $72.51.

U.S. Stocks Ease Off Their Early Highs

Stocks in the U.S. edged off their opening highs but were staying positive Thursday morning, as a decline in third-quarter GDP was narrower than expected and companies issued a heap of quarterly earnings statements.

The Dow Jones Industrial Average was up 69 points to 9060, and the S&P 500 added 11 points to 941. TheNasdaq jumped 20 points to 1678.

Ahead of Thursday's session, the Department of Commerce reported that GDP contracted 0.3% in the third quarter, providing a strong indication that the U.S. has entered a recession. The decline was narrower than expected by economists but down from growth of 2.8% in the second quarter.

"If you'd been wondering if there was recession, this kind of brings it home," said Phil Dow, director of equity strategy at RBC Dain Rauscher. He said that a recession normally has been ongoing by the time the government says there is one, and that he thinks going forward the U.S. will see a two-quarter recession followed by modest growth.

"We shouldn't look for perfection in these estimates," said Dow. "It's pretty easy to get in a black mood and think that this is going to extend forever."

As for the GDP number's impact on stocks, "Normally you have the stock market recover even when it's cloudy," said Dow, and he said the market feels like it's close to an interesting bottom in pricing.

Steven Wieting, economist at Citigroup, wrote in an email that consumer spending for the third quarter dropped 3.1%, the biggest drop since 1980. Declines in production and employment, coupled with tight credit markets and wealth destruction indicate that GDP may decline more than 3% for the fourth quarter, he wrote.

Are Stock Prices Fair?

One of the great ad slogans of many years ago was, "When was the last time you lost an argument quoting The New York Times?" But David Leonhardt had a column in Wednesday's edition of the Times that I am going to dare to take exception to.

"Are stocks the bargains you think?" was the header. In the text, he mentions that the ratio of stock prices to earnings is slightly below the long-term average, but that there have been times of much lower valuations. That is absolutely true, but with a caveat. The trailing price-to-earnings ratio has averaged about 16 times for a long time, but Leonhardt points out that in 1982 it was 7, and roughly the same in the 1970s debacle. But -- and it's a big "but" -- the yield on the 10-year Treasury bond was much higher in both instances. In 1982, the 10-year yield reached 14.6% and the 1974 stock market bottom saw a 8.5% yield. The 10-year is about 3.6% today. You can't look at the one without the other.

The current value of today's market when compared with the alternate investment option of the fixed-income market makes me believe stock prices are fair. They're fair assuming that earnings bottom in 2009. If we have entered a period of deep recession and a very long laborious recovery, then the sideline is the place to be.

We have been using a very low estimate for 2009 per-share earnings for the S&P 500. Our back-of-the-envelope calculation led us to a $60-to-$65 number. The consensus among analysts a few weeks ago before the extent of the current crisis became obvious was well over $90. We guessed that the consensus would have to come down and stocks at best struggle when estimates are falling. Citigroup's economist reportedly lowered his estimate for 2009 to $64 on Wednesday. We need to see more of that in the weeks ahead before we can possibly hope to get positive surprises in the months ahead.

The big question is how deep and long will the recession be. My guess is that it will not be as deep as could be imagined because of the flood of liquidity unleashed upon the markets. The length could be stubbornly long as consumers retool their balance sheets and raise their savings rates.

I am hopeful that earnings will bottom in 2009. If that proves right, the current market value of 930 on the S&P divided by a $64 estimate for a P/E ratio of 14.5, against a 3.8% 10-year bond, is investable.