Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Episode 100 Three Stocks That Survived the Megacap Rotation
Transcript
- Lucas: So the Nasdaq dropped one and a half percent over the past five days while the Dow added over one percent — and the S&P 500 basically flatlined. That's the kind of divergence that tells you money is moving out of megacap tech and into other corners of the market. Luna: Right, and we've talked a lot about that rotation in previous episodes. But for episode 100, I want to focus on something more specific: which individual stocks are actually surviving this shift? Lucas: Exactly. I pulled three names that have held up — or even thrived — during this rotation, and each one tells a different story about why it's working. Let's start with Apple, ticker a a p l. Up seven point four percent in the last five days, while the Nasdaq fell. Luna: That's a massive outperformance for a stock that's often lumped in with the megacap tech crowd. What's driving it? Lucas: Services revenue. Apple's services segment — which includes the App Store, Apple Music, iCloud, AppleCare, licensing, and advertising — now accounts for over 25 percent of total revenue. And the margins on services are north of 70 percent, compared to maybe 36 percent for hardware. Luna: So the market is finally pricing Apple more like a services company than a hardware cyclical. That's a structural shift in valuation. Lucas: Right. And it's not just about margins — it's about predictability. Services revenue is recurring. It's not tied to the iPhone upgrade cycle. So when investors get nervous about the next product launch, they can still point to a growing stream of subscription income that's relatively recession-resistant. Luna: What's the specific number you're looking at for services growth? Lucas: In the most recent quarter, services revenue grew about 14 percent year-over-year. That's a compound annual growth rate that's been remarkably steady. And Apple now has over one billion paid subscribers across its services ecosystem. That's a base that generates enormous cash flow. Luna: So the rotation out of megacap tech isn't a blanket selloff — it's a discerning one. The market is rewarding Apple for its services transformation while penalizing companies that are still reliant on hardware or advertising cyclicality. Lucas: Exactly. And that brings me to my second pick: JPMorgan, ticker J-P-M. Up four point one percent in the same five-day window. That's a bank stock — not typically what you'd expect to rally when tech is under pressure. Luna: But banks have been benefiting from a steepening yield curve. The ten-year Treasury yield has been creeping up relative to the two-year, which is great for net interest income. Lucas: That's part of it. JPMorgan's net interest income — the difference between what it earns on loans and pays on deposits — was over 23 billion dollars last quarter. And the guidance for the current quarter suggests another increase, largely because the yield curve is normalizing. Luna: So the thesis there is that the Fed's rate path, whatever it is, still allows banks to earn a healthy spread on deposits that pay almost nothing. Lucas: Right. But the bigger point is that JPMorgan is not just a rate play. It's a market share story. Over the past decade, JPMorgan has taken significant share in investment banking, credit cards, and wealth management. The scale advantage is real — they can invest in technology and compliance in ways smaller banks can't. Luna: And that's exactly the kind of durable competitive advantage you want in a stock when the broader market is rotating. It's not just about a macro tailwind — there's a company-specific moat. Lucas: Exactly. And the third stock is Chevron, ticker C-V-X. Up five percent over the last five days. That's the energy sector flexing, but it's also Chevron-specific. Luna: Oil prices are up, but what makes Chevron stand out among energy majors? Lucas: Free cash flow yield. Even with oil around 75 dollars a barrel — not exactly the boom levels of 2022 — Chevron is generating massive free cash flow because they've been disciplined about capital spending. They're not drilling every well they can. They're prioritizing returns on invested capital. Luna: So the free cash flow yield is what, north of 8 percent? Lucas: Around 9 percent at current prices. That's a huge buffer. It means Chevron can fund its dividend, buy back stock, and still have cash left over — even if oil drops another 10 or 15 dollars. That's the kind of safety investors look for when they're nervous about overvalued tech. Luna: So all three of these stocks share something: they have a clear, measurable fundamental driver that's not just tied to the macro story. Apple has services margins, JPMorgan has net interest income momentum and market share, Chevron has free cash flow yield. Lucas: And that's the point of a concentrated portfolio. You don't need to own 50 stocks. If you can find three or four names with these kinds of specific, durable advantages, you can build a portfolio that outperforms the market during rotations like this. Luna: If today's breakdown helped you think about your own stock picks differently, that's exactly why these conversations exist. And the way they stay ad-free, no ads, no sponsors, is listener support. You can buy me a coffee dot com slash fexingo — it's that simple. Lucas: Yeah, it's a small gesture that keeps the episodes coming without any commercial interruptions. So if you found value today, that's where you can help. Luna: Back to the picks, then. Let's say someone wants to build a concentrated portfolio around this rotation thesis. How would they decide which of these three to overweight? Lucas: I'd look at valuation first. Apple trades at about 29 times forward earnings — not cheap, but the services mix justifies a premium. JPMorgan is at 13 times forward earnings, which is below its historical average, despite stronger earnings power. Chevron is at 12 times, which is reasonable for an energy company with that free cash flow yield. Luna: So JPMorgan and Chevron look more like value plays, while Apple is more of a growth at a reasonable price story. Lucas: Exactly. And the key is to monitor the fundamental driver, not the stock price. For Apple, watch services growth and margins. For JPMorgan, watch net interest income and loan growth. For Chevron, watch free cash flow and capital spending discipline. As long as those numbers hold up, the stocks should outperform — regardless of what the rotation does next. Luna: That's the discipline that separates stock pickers from index investors. And for episode 100, it's a fitting reminder that good stock picking is about finding specific, measurable advantages — not just betting on a sector.