Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / How ExxonMobil Is Outperforming Tech in Mid-2026
Transcript
- Lucas: ExxonMobil just had its best week in months — up nearly six percent in the last five sessions. And it's not alone. Chevron's up almost five percent. Meanwhile, Apple's down nearly three percent this week, Microsoft down three, Meta down more than five. The energy sector is quietly smoking the tech giants. Luna: Quietly is the key word. No one's talking about it because everyone's still obsessed with AI and rate cuts. But the numbers are pretty stark. Lucas: Exactly. And look, if our money conversations have helped you think about a decision differently — maybe you rebalanced your portfolio or finally looked at your 401k allocation — a couple of dollars a month genuinely keeps these episodes coming. Buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: Yeah, it's a small thing that makes a real difference for us. And honestly, it keeps the show ad-free and focused on what matters. Lucas: So back to the oil story. The immediate trigger is pretty clear: the U.S.-Iran conflict has escalated again over the past week, and that always puts a bid under crude. But the bigger picture is structural. Luna: Right, because energy stocks have been out of favor for so long. People think of them as dinosaurs. But the economics have changed. Lucas: Completely. Exxon in particular has undergone a transformation since 2020. They cut costs by roughly thirty billion dollars over the past few years, streamlined their portfolio, and committed to returning most of their free cash flow to shareholders through dividends and buybacks. Luna: And that discipline is paying off now. Their dividend yield is around three and a half percent, and with buybacks, the total yield to shareholders is probably close to eight percent. Lucas: Which is enormous compared to the S&P 500's roughly one and a half percent dividend yield. And it's backed by real cash flows. Exxon generated something like fifty-five billion in free cash flow last year — more than most of the megacap tech companies on a per-share basis. Luna: So while everyone's worrying about AI capex cycles and ad revenue slowdowns, Exxon is just printing cash and handing it back to shareholders. Lucas: That's exactly the narrative. And it's not just Exxon. Chevron has a similar approach. Even some of the European majors like Shell and BP have shifted toward higher shareholder returns, though they face more political pressure on the energy transition. Luna: But there's a tension here, right? The same conflict that's boosting oil prices is also a reminder of the volatility that comes with energy stocks. Lucas: Sure. And that's the reason many investors still avoid the sector. Oil prices can swing twenty percent in a quarter based on geopolitics or OPEC decisions. But the argument for owning Exxon today is that even if oil falls to sixty dollars, the company still generates enough cash to cover its dividend and maintain its operations. Luna: Because they've brought the breakeven cost down so much. That's the key change. Lucas: Exactly. In 2014, Exxon needed oil above ninety dollars to really generate free cash flow. Now it's probably around forty or forty-five dollars. That's a massive structural improvement. Luna: So it's almost like a value play with a growth kicker if oil stays elevated? Lucas: I think that's fair. And the market is starting to price that in. Look at the relative performance this year: the energy sector is up about eighteen percent, while the S&P 500 is up about twelve. And the AI trade has been much more volatile. Luna: Which brings us to the question that I think a lot of listeners are wondering: is it too late to buy Exxon here? The stock is near all-time highs. Lucas: It's a fair question. On a price to earnings basis, Exxon trades around fifteen times forward earnings, which is slightly above its five-year average but still cheaper than the S&P 500 at twenty-two times. The dividend yield is still attractive. And the balance sheet is pristine. Luna: But the elephant in the room is the energy transition. At some point, demand for oil is going to peak. That's a long-term risk that's hard to ignore. Lucas: No doubt. And every major oil company is trying to figure out that transition. Exxon has invested in carbon capture and lithium extraction for EV batteries. But the core business is still oil and gas, and that's not going away overnight. The IEA still projects oil demand above a hundred million barrels a day through 2030. Luna: So for an investor with a five-year time horizon, the risk-reward might actually be pretty good. You get a decent yield, you get some upside from geopolitical premiums, and you're not paying a huge multiple. Lucas: I agree. And I'd add that the energy sector also provides diversification. If you're heavy in tech — and most growth portfolios are — adding a name like Exxon or Chevron can reduce overall portfolio volatility because energy often moves inversely to tech. Luna: That's been true this week for sure. Tech down, energy up. Lucas: Right. And it's not just Exxon. I'd point listeners to the broader energy space. Midstream companies like Enterprise Products Partners offer even higher yields, though with different risks. And some of the smaller exploration companies have more leverage to oil price moves. Luna: But for a concentrated portfolio, you probably want the quality names. Exxon and Chevron are the blue chips. Lucas: Exactly. And speaking of concentrated portfolios, one thing that strikes me is how the energy rally is reshaping the market leadership. For years, it was all tech, all the time. Now we're seeing a rotation into value, into energy, into financials. JPMorgan is up this week too. Luna: Yeah, the banks have been strong. But energy is really the standout. I'm curious what the catalyst would be for this to continue. If oil stays above eighty, these companies will just keep piling up cash. Lucas: And they'll keep returning it to shareholders. Exxon's buyback program is something like thirty billion dollars a year. That's a huge tailwind for the stock price. Luna: So the thesis is pretty simple: a cheap stock with a high yield, a strong balance sheet, and a catalyst from geopolitics. Sounds like a classic value play. Lucas: It does. And the market is starting to notice. But I think the bigger lesson here is about portfolio construction. Don't ignore the sectors that everyone else has given up on. Energy was left for dead after the 2020 crash, and look at it now. Luna: It's a good reminder that mean reversion is a powerful force. And that the next big winner often comes from an unloved corner of the market. Lucas: Yeah. So if you're looking for ideas this week, energy is worth a serious look. And if you want to dive deeper into Exxon's numbers, we can do a follow-up episode on their latest earnings when they report next month. Luna: I'd love that. For now, I think the takeaway is: don't sleep on oil stocks. They're not just a trade — they might be a long-term holding.