Soaring energy prices buoyed Exxon Mobil Corp. shares to an all-time high this year, but it was not enough to displace a resurgent General Electric Co. as the U.S. company with the highest market capitalization. (MSNBC is a joint venture of Microsoft and NBC, which is a GE company.)
With three more trading days in 2004, GE has held on to the No. 1 spot with a market value of $387.9 billion — nearly one-fifth bigger than Exxon and its $329.3 billion price tag. Microsoft Corp. is third at $293.1 billion.
Earlier this year Exxon Mobil appeared poised to rise to the top as record gas, oil and gasoline prices promised unprecedented earnings. Shares of Irving, Texas-based Exxon, which reached a record high on Dec. 23, are up 24 percent this year, beating an 8.9-percent advance by the S&P 500 Index.
But GE, which makes everything from turbines and appliances to CAT-scan machines and television sitcoms, more than kept up the pace. Forecasts of double-digit earnings growth in the fourth quarter and 2005 have pushed GE shares up 18 percent this year.
Beyond a return to standout growth, investors are encouraged by the mix of businesses assembled by GE Chief Executive Jeffrey Immelt in his first three years at the helm.
"He's convinced investors GE has more attractive growth prospects than the old GE," said industry analyst Lawrence Horan at Parker/Hunter Inc. in Pittsburgh.
A GE spokesman said the company does not comment on market value. An Exxon spokesman said, "Being the biggest company is not nearly as important to us as being one of the most profitable."
Poised for growth
Among transactions completed this year, GE bought Britain's Amersham Plc for $10.7 billion, bolstering its health-care division, and it bought Vivendi Universal Entertainment for $3.65 billion plus assumed debt. GE also began spinning off Genworth Financial Inc. to trim its exposure to insurance businesses.
"He's (Immelt) really repositioned the company," said Steve Roukis, research director at Matrix Asset Advisors, which owns 1.4 million GE shares. "GE is gaining share in businesses you typically don't gain market share in."
That said, the fact that Exxon did not surpass GE during one of the biggest energy rallies ever also demonstrates how investors ignore commodity swings and focus on long-term trends. Oil has fallen to $42 a barrel from a record $56 in October, but Wall Street says oil should average $20 to $25 a barrel over time.
And so Exxon, with its leading returns and steady dividend, trades at about 14 times earnings, compared with 18 for the S&P 500 and a multiple of 23 at GE.
"Oil prices are up nearly 40 percent this year, yet energy stocks did not perform nearly as well," said Tim Ghriskey, chief investment officer at Solaris Asset Management.
S&P market equity analyst Howard Silverblatt, who earlier this year projected Exxon could overtake GE, noted market value is a product of price and shares outstanding. GE increased its share count by more than 5 percent, while Exxon reduced shares outstanding by 2 percent.
Without these changes, Exxon would have come a lot closer to closing the gap, he said.
"Looking at our current target prices, we still project Exxon will overtake GE," Silverblatt said. S&P forecasts Exxon shares will rise to $57 next year, but GE has already reached the agency's target of $37 a share.
Parker/Hunter's Horan argues GE shares are "fully valued" against 2005 earnings. There also remains the usual questions of how a giant like GE can expand existing businesses.
"It's so big you have to ask yourself how it's going to grow at the 10 to 15 percent rates people expect from the company, without deals," said Alex Vallecillo, a senior portfolio manager at Armada Funds.
Among other answers, GE announced plans to buy back $15 billion of stock over the next three years, or roughly 4 percent of its outstanding shares at current prices.
But as we enter 2005, Exxon remains within striking distance of the top. If energy prices, and profits, remain high, GE executives will have to be careful not to stumble.
"I don't think the last chapter has been written" on Exxon's challenge for the market cap crown, Solaris' Ghriskey said. "Our belief is that while oil will come down, it will settle at prices higher than what Wall Street expects."