Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why ExxonMobil Is Outperforming Tech Stocks in Mid-2026
Transcript
- Lucas: So ExxonMobil is up almost six percent in the last five trading days. That's not a typo — while Meta is down five and a half, Tesla down four and change, the old energy giant is quietly outperforming just about everything in the S&P 500. Luna: And it's not just a one-week blip. Exxon is up year-to-date while most of the big tech names are flat to negative. What's driving this? Lucas: This is a classic case of market rotation, but there's something deeper happening. Exxon isn't just riding higher oil prices — though Brent above eighty-five helps. The company has fundamentally changed its capital allocation model. Luna: Meaning they're not doing what they did in 2010, throwing billions into mega-projects with uncertain returns. Lucas: Exactly. Since the pandemic, Exxon has been on a discipline kick. They cut capital spending by about thirty percent from pre-2020 levels, they sold off non-core assets, and they've been aggressively buying back shares. In the last twelve months alone, they've reduced the share count by roughly four percent. Luna: That directly boosts earnings per share, which matters when the market is rewarding free cash flow generation. Lucas: And Exxon's free cash flow yield right now is among the highest in the S&P 500 — north of eight percent. Compare that to, say, Alphabet, which is around three and a half. In a market where the ten-year Treasury is yielding over four percent, investors are asking: why take the risk of a growth stock when I can get a similar or better yield from a company with pricing power and a fortress balance sheet? Luna: And that's exactly the value vs. growth debate playing out in real time. The value ETF, VTV, is actually up slightly over the last five days while the broader market dipped. Lucas: Speaking of which, you know, if our conversations about value and free cash flow have helped you think about your own portfolio differently, that's really the whole point of this show. The way we keep it ad-free and independent is through listener support — if today's episode was worth a coffee to you, that's the link: buy me a coffee dot com slash fexingo. No pressure, but it genuinely helps us keep digging into stories like this. Luna: Yeah, agreed. It's a small gesture that goes a long way in keeping the show exactly as it is. Lucas: So back to Exxon. The other piece of this is refining margins. Exxon is the largest refiner in the world, and with capacity constraints globally — especially after several European refineries shut down — their downstream business is printing cash. Luna: Right, and that's something most people don't associate with Exxon. They think 'oil driller,' but refining is a huge part of the profit picture. Lucas: In the first half of 2026, Exxon's refining earnings were up close to twenty percent year-over-year, even as crude prices stayed relatively stable. That diversification — from upstream to downstream to chemicals — gives them a buffer that pure-play E&P companies don't have. Luna: So is this a 'buy the rotation' moment for individual investors, or is it too late? Lucas: I think the risk is that energy is cyclical. If we get a recession, oil demand drops, and Exxon's earnings will follow. But the bull case is that the market is underpricing the structural changes Exxon has made. The company has committed to returning over fifty percent of its operating cash flow to shareholders through dividends and buybacks. That's a capital-return story that looks more like a utility than a volatile commodity play. Luna: And that narrative shift is exactly why you're seeing institutions rotate back into it. The stock now trades at a price to earnings ratio around thirteen, which is a discount to the S&P 500's twenty-two. Lucas: But there's a counter-argument. The energy sector is still only about four percent of the S&P 500 by market cap. For Exxon to truly become a core holding again, you'd need a sustained period of energy outperformance, which is rare historically. Luna: And the clock is ticking on the energy transition. Even if Exxon is generating huge cash flows now, long-term demand for oil is uncertain. That creates a valuation ceiling. Lucas: It does. But here's the thing: the timeline for peak oil demand keeps getting pushed out. The International Energy Agency now says plateauing demand won't happen until at least 2035. That gives Exxon a decade-plus of strong cash flows to return to shareholders. And if the company can maintain its cost discipline, the stock could continue to deliver total returns that rival or beat tech. Luna: So what's the one number you'd point to that sums up the Exxon story right now? Lucas: I'd say the free cash flow yield, which we mentioned — over eight percent. In a world where the S&P 500 earnings yield is about four and a half percent, Exxon is effectively offering a double-digit cash return. That's hard to ignore, especially when growth expectations are getting revised down. Luna: And we saw that this week with Alphabet and Tesla both taking hits after their earnings. The market is punishing any hint of slowing momentum. Lucas: Exactly. So Exxon becomes a haven for capital that wants yield plus some upside optionality. And honestly, that's why I think this outperformance might have legs — at least until the next tech cycle reignites. Luna: Or until oil prices crash. But that's a risk you can hedge. Lucas: Sure. For now, Exxon is showing that old economy stocks can still deliver in a high-rate, low-growth environment. It's a reminder that diversification isn't just about owning different tech names — it's about owning different sectors. Luna: And that's a lesson worth holding onto regardless of what the market does next.