This may seem like a weird time to be recommending Exxon Mobil (NYSE:XOM) stock. Inflation expectations — and policymakers’ lack of clarity regarding plans to curb any potential inflation crisis — are discouraging investors. None of us can control the fact that central authorities are prioritizing per-capita GDP recovery while ignoring surging prices.

Fortunately, there’s always a bull market somewhere — even in an inflationary environment.

When you’re trying to combat inflation, you need to search for two attributes in a stock. First, look for high dividend yields, as this is a leading indicator of value, and value usually outperforms growth during inflationary pressure. And second, look for vertical integration. Vertically integrated companies own large parts of their value chains, meaning they possess bargaining and pricing powers and are less vulnerable to inflation.

The energy sector ticks both boxes — they offer juicy yields, and oil and gas market leaders are the best examples of vertical integration.

And Exxon Mobil is the pick of the lot for me. Here’s why.

Exxon Mobil By the Numbers

The company experienced negative earnings three out of four quarters in 2020 — the first time that’s happened since listing on the New York Stock Exchange in 1978. The company returned to profitability again during the first quarter of 2021 as operating capacity increased. 

Exxon crushed analysts’ estimated in Q1 with an earnings per share beat of 5 cents and a revenue beat of $2.89 billion.

Exxon’s situation during the initial Covid-19 outbreak was anomalous — the company’s risk management framework wasn’t prepared for such an event. Energy is one of society’s greatest needs. There will always be demand for it, even during a pandemic, but that doesn’t mean that operations will not be disrupted from time to time.

I believe that the company has prepared itself for any potential restrictions if new variants end up causing more harm than expected. Exxon has enough slack to cope with disruptions in the future as its inventory is bulked up.

I expect this number to jump due to both systemic and idiosyncratic reasons. First, global policymakers such as OPEC have decided to increase crude oil output. Although U.S. operations don’t fall under the cartel’s policy, OPEC is a helpful metric for determining industry price security.

Exxon has pivoted perfectly to profit from an increase in production, with further cost-cutting in its fracking and drilling processes taking place in the Permian basin. In addition, it will add approximately 9 billion barrels to its output after having announced successful exploration of the Longtail-3 well off the coast of Guyana.

XOM Stock Valuation Metrics

First, I’d like to point out the dividend yield, as it’s often critical to value investing. Exxon’s forward dividend yield of around 6% is the twelfth-highest of all S&P 500 companies. Investors aren’t only assured of value by such a high yield, but you’re looking at a solid income investment if you combine it with the company’s 39 years of consecutive dividend payouts.

The company has also prepared itself for any potential restrictions if new variants end up causing more harm than expected. Exxon has enough slack to cope with disruptions in the future, as its inventory is bulked up.

Both the price to sales and price to cash flow ratios are looking good. They’re trading below 2 and 15, which are considered the overvalued thresholds.

Furthermore, the price to book ratio is trading below both index and its five-year average. Price-to-book ratios are useful value indicators for energy companies, as their asset base is tangible and plays a large part in their revenue. 

A potential fault line could be the high price-to-earnings ratio, but the number is artificial at the moment as the company’s earnings per share were significantly diluted during 2020. Analysts expect a recovery of the company’s EPS by 15.96% over the next 18 months.

Final Word on XOM Stock

Exxon Mobil is as good as it gets if you’re trying to beat inflationary pressure. The company has returned to operating at scale, and it seems as though it’s ensuring enough reserves are available in case more unexpected pandemic restrictions arise. A sublime dividend yield accompanied by encouraging relative valuation metrics leads me to believe that the stock will outperform the market for the foreseeable future. If there are any questions regarding this article, then please get in touch with me directly!

On the date of publication, Steve Booyens did not hold any long or short positions in any of the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve’s content for InvestorPlace includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.