Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why Chevron and Exxon Are Diverging This Quarter
Transcript
- Lucas: The S&P 500 sitting at 7,473, the Dow above 50,000 — it's a pretty buoyant market, and small caps are absolutely ripping, up 3.4 percent in five days. Luna: And yet Big Oil is getting left behind. Chevron down 1.5 percent, Exxon off 3.5 percent over the same stretch. Lucas: Yeah, a 200-basis-point divergence between the two majors in just a week. That's a big gap for two companies that usually trade in lockstep. Luna: So what's driving the split? Is it just crude prices, or is there something structural underneath? Lucas: It's structural. Let's start with Exxon. Their stock is down 3.5 percent, and I think a lot of that is the Guyana overhang. They've been ramping production in the Stabroek block — it's a world-class asset, low-cost, high-margin. But the market is starting to worry that Exxon is becoming too dependent on one geographic story. Luna: Right, it's like the opposite of diversification. If Guyana hits a regulatory snag or a production hiccup, that's a lot of eggs in one basket. Lucas: Exactly. And there's also the LNG overhang. Exxon has massive exposure to global LNG markets, and we've seen a glut building through 2025 and into 2026. Asian spot prices have been soft, and European storage is full. That's weighing on their integrated earnings. Luna: Meanwhile Chevron is only down 1.5 percent. They're not immune, but they're holding up better. What's their buffer? Lucas: Chevron's buffer is the Permian Basin. They have the most efficient acreage in the Permian, and they've been methodically driving down well costs. Their breakeven on a new Permian well is something like $35 a barrel. With crude around $70, that's a ton of free cash flow. Luna: So Chevron's advantage is operational efficiency, not geographic luck. Lucas: Exactly. And the market rewards that. Look at free-cash-flow yield — Chevron's is around 8.5 percent, Exxon's is closer to 6 percent. In a value rally like we're seeing — IWD up 1.6 percent this week — investors are gravitating toward the company that returns more cash to shareholders. Luna: That makes sense. But if someone is building a concentrated portfolio — say five to ten stocks — is it worth holding both? Or should you pick one? Lucas: I'd pick one, and for my money it's Chevron right now. The capital-allocation discipline is better. Chevron has been buying back stock consistently, growing the dividend at a steady clip. Exxon is still digesting the Pioneer acquisition — they're integrating, which always carries execution risk. Luna: Speaking of capital allocation and the discipline to stick with a strategy — that's something we talk about a lot on this show. And it's also something that keeps us going week after week. If our money conversations have helped you think about a decision differently, a couple of dollars a month is genuinely what keeps these episodes ad-free — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, it really does make a difference. We don't run ads, so listener support is what lets us keep drilling into specific companies and numbers like this. Appreciate every bit. Luna: Okay, back to Chevron versus Exxon. The other thing I want to flag is valuation. Chevron trades at about 12 times forward earnings, Exxon at 14. That's a discount, but it's not huge. Lucas: It's not huge, but it's persistent. And when you factor in the free-cash-flow yield difference, the spread widens. Chevron's price-to-free-cash-flow is around 11, Exxon's is closer to 15. That's a 30 percent premium for Exxon that I'm not sure is justified. Luna: Especially when you consider that Chevron has a cleaner balance sheet. Their net debt to EBITDA is under 0.5 times. Exxon is around 1.2 times after the Pioneer deal. Lucas: Right. Leverage matters in a commodity business. If crude drops to $50, Chevron's balance sheet can absorb it. Exxon would have to cut capex or buybacks. That's a real risk. Luna: So the case for Chevron is efficiency, free cash flow, and balance sheet strength. But what about the bull case for Exxon? There has to be one. Lucas: There is. The bull case is Guyana ramping to over a million barrels a day by 2030. That's a multi-decade cash machine with incredibly low lifting costs — like $5 a barrel. If Exxon executes on that, the current multiple could look cheap in hindsight. Luna: And there's also the chemicals business. Exxon's chemical segment is more integrated than Chevron's. If the global economy picks up, petrochemical margins could boost Exxon more than Chevron. Lucas: That's fair. But that's a cyclical bet, and we're in a late-cycle environment. The yield curve is inverted, the Fed is still cautious. Cyclical bets are risky right now. Luna: I want to bring in one more data point. Small caps are up 3.4 percent this week, and the Russell 2000 is at 2,869. That's a rotation into domestic, smaller companies. Energy is a value sector, but it's also global — and global trade tensions are still simmering. Lucas: Yeah, the APEC headlines this weekend were pretty clear: the U.S. and China are still far apart on trade. That's a headwind for oil demand, and it hits Exxon more because of its LNG exposure to China. Chevron's crude production is more U.S.-centric. Luna: So the divergence could widen before it narrows. Lucas: I think so. And for a concentrated portfolio, the lesson is: don't just buy the sector ETF. Do the work on individual companies. Chevron and Exxon are both 'Big Oil,' but their risk profiles are very different right now. Luna: That's the kind of specificity we aim for. One concrete takeaway: if you're looking at energy, compare free-cash-flow yield and leverage before you decide which one to own. Lucas: Exactly. And don't forget about the macro backdrop — small-cap rotation, trade uncertainty, LNG glut. Those are all shaping which oil major will outperform. For now, the edge goes to Chevron. Luna: We'll see how it plays out. Next week we might be talking about Exxon catching up. Lucas: That's the fun part. Markets change, and we'll be here to dig into the numbers.