Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why One Energy Stock Is Beating Big Oil in 2026
Transcript
- Lucas: ExxonMobil is up five and a half percent in the last five trading days. That’s not a headline-grabbing number by itself, but when you stack it against the S&P 500 being flat and Chevron up just over four percent, something interesting is happening inside Big Oil this spring. Luna: And it’s not just a one-week story. Exxon is up roughly twenty percent year-to-date. Chevron is closer to twelve. So the gap is widening. Lucas: Right. And the question is why. Because if you look at oil prices themselves, Brent crude has been range-bound between sixty-five and seventy-five dollars a barrel for most of 2026. So this isn’t a rising-tide-lifts-all-boats situation. Exxon is doing something its peers aren’t. Luna: Let’s talk about what that something is. Because when I look at the two, the obvious difference is Permian Basin exposure. Exxon has been aggressively consolidating acreage out there. Lucas: That’s the big structural bet. Exxon spent roughly sixty billion dollars over the past few years to bolt on Pioneer Natural Resources and then additional Permian acreage. The thesis was that they could drive down unit costs by running the longest laterals and the highest density fracks in the basin. And from what we’re seeing in their upstream margin reports, it’s working. Their Permian break-even is now below thirty-five dollars a barrel. That’s industry-leading. Luna: And Chevron, by contrast, has been more cautious. They sold some Permian assets last year, they’re leaning into the Gulf of Mexico and some international LNG projects. Different risk profile. Lucas: Yeah, and the market is rewarding the focused, low-cost strategy right now. But there is another layer to this. If our conversations about stock picking have helped you think about a decision differently, listener support is what keeps this show ad-free and independent. You can find us at buy me a coffee dot com slash fexingo. Luna: It’s a small gesture that makes a big difference for us. And we really appreciate it. Lucas: So back to Exxon. The other piece that often gets overlooked is their chemicals and trading business. They’ve built a massive integrated refining and chemicals complex on the Gulf Coast, and that gives them a natural hedge when oil prices dip. When crude drops, their refining margins expand. Luna: Right. It’s the classic integrated model working well. Chevron has that too, but not at the same scale. Exxon’s chemicals earnings have been a steady contributor, even during the 2020 downturn. Lucas: Exactly. And the trading desk — which they’ve quietly expanded over the past five years — adds another layer. They’re not just a producer and refiner, they’re a sophisticated commodities trader. That can smooth out earnings volatility in a way that pure upstream companies can’t. Luna: So the market is pricing in a premium for that earnings stability. But I want to push back a little. Energy stocks in general face political headwinds. The Biden administration has been pushing for tighter methane rules, and there’s talk of windfall profit taxes if oil stays above seventy. Does Exxon have more to lose there because it’s bigger? Lucas: It’s a fair concern. But look at the balance sheet. Exxon has one of the strongest in the sector — net debt to EBITDA is under 0.5 times. They can absorb a tax hit or a regulatory fine better than a smaller player. And they have been using that financial strength to return capital to shareholders. They’ve boosted the dividend for over forty years straight, and they’re buying back stock aggressively — about twenty billion dollars a year at current pace. Luna: That dividend track record is a big deal for income investors. Chevron also has a strong record, but Exxon’s payout ratio is lower, so there’s more room to grow. Lucas: Right. The dividend is currently yielding about three and a half percent, and it’s well covered. So you get income, plus the buyback tailwind, plus the operational leverage if oil prices ever break higher. Luna: What would need to happen for oil to break higher? Because that’s the swing factor. If we get a recession, demand drops, and all this goes away. Lucas: Sure. The bear case for energy is that global GDP growth slows, EV adoption accelerates, and OPEC+ floods the market to defend market share. That’s a real scenario. But Exxon’s low-cost position means they can still generate positive free cash flow even at fifty dollars Brent. That’s a huge moat. Luna: So the bull case is that the market is undervaluing that resilience. The stock trades at about fourteen times forward earnings, which is a discount to the S&P 500’s twenty-one times. And that’s despite better earnings growth. Lucas: Exactly. And the earnings growth is real. First quarter 2026 earnings were up about fifteen percent year-over-year, driven by volume gains in the Permian and stronger chemicals margins. Analysts have been raising estimates all spring. Luna: So what’s the risk that the stock has already run too far? It’s up twenty percent year-to-date, and you’re making the case that it could go higher. Lucas: The risk is that oil prices soften and the multiple contracts. But I’d argue that the market hasn’t fully priced in the structural improvement in Exxon’s cost base. They’re not the same company they were five years ago. The Permian integration is still delivering synergies, and the trading desk is still scaling. Luna: I want to bring in one more data point from this week. The IWD value ETF is up 1.3 percent over five days. Exxon is up 5.5. So the stock is significantly outperforming the value factor. That suggests it’s a company-specific story, not just a style tailwind. Lucas: That’s a great point. And it reinforces why stock picking matters. If you just bought the value ETF, you got a solid one percent this week. If you did the work on Exxon and bought it, you got five times that. Luna: So for someone listening who wants to drill deeper, what’s the one thing they should watch going forward? Lucas: I’d watch the quarterly upstream volume numbers. If Exxon can sustain Permian production growth of ten percent or more year-over-year, that’s the signal that the acreage thesis is working. If growth stalls, the stock could stall too. Luna: And the other metric I’d flag is free cash flow yield. It’s currently around eight percent after capex. That’s robust. If it stays above seven, the dividend and buyback are safe. Lucas: Great call. So to sum it up: Exxon is winning because of a deliberate, lower-cost, more integrated strategy that the market is rewarding. The stock isn’t cheap by energy history, but it’s still a discount to the broad market, and the earnings trajectory is solid. Luna: I think the key takeaway is that not all Big Oil is created equal. You have to look under the hood at the asset base, the cost structure, and the capital allocation philosophy. Lucas: Absolutely. And that’s what we try to do here every episode. Thanks for listening.