Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why the Nasdaq Is Tumbling While Oil Stocks Surge
Transcript
- Lucas: It's Thursday, July 23, 2026, and the Nasdaq is down 0.7 percent over the past five days, while the S&P 500 is basically flat. But look under the hood — that headline number hides a massive rotation. Luna: You're talking about the energy stocks, right? XOM up 5.8 percent in five days, CVX up 5 percent. Meanwhile META loses 5.6 percent, Tesla loses 4.4 percent. Lucas: Exactly. This is the kind of week that makes you question whether the long-running tech dominance is finally cracking. I want to focus on one piece of that rotation — the energy sector itself. Because it's not just about oil prices moving up. Luna: Sure. What's the specific angle? Lucas: I think the market is starting to price in that ExxonMobil and Chevron have fundamentally lower risk profiles than they did five years ago. And that's changing how investors value them. Luna: Lower risk? They're still in a commodity business. Oil at 70 dollars a barrel versus 90 changes everything. Lucas: It does, but look at what both companies have done. Exxon, for example, has been on a cost-cutting and efficiency drive that's structural, not cyclical. They said at their investor day in March that they can generate a 10 percent return on capital employed even if oil averages 50 dollars a barrel. That's a huge shift from the 2010s, when they needed 70 or 80 dollars to break even. Luna: So the breakeven has dropped by 20 to 30 dollars per barrel. That's a massive margin of safety. Lucas: Exactly. And Chevron is in a similar position. They've been methodically improving their Permian Basin operations — longer laterals, better fracking techniques, lower water usage. Their Permian production costs are now around 12 dollars per barrel. When oil is at 80, that's a very fat margin. Luna: So the market is rewarding them for capital discipline — not just higher oil prices. Lucas: That's the key distinction. If you look at the five-day move, XOM and CVX are up even though oil futures only moved a couple percent. The re-rating is about the business model itself. Luna: And meanwhile, tech is getting hit by multiple compression. META's forward price to earnings ratio was something like 28 at the start of the year. That's come down, but it's still not cheap if growth slows. Lucas: Right. And I think there's a bigger narrative here. For the last decade, if you wanted growth, you bought tech. If you wanted safety, you bought consumer staples or utilities. Energy was this volatile, speculative bucket that no one held for the long term. But that's changing. Luna: You think energy is becoming a 'safe' sector? Lucas: Not exactly safe, but more durable. The majors have paid down debt, they've bought back stock aggressively, and they're returning more cash to shareholders. Exxon's dividend yield is around 3.7 percent now. That's competitive with utilities. And the buyback is adding another 2 or 3 percent to total yield. Luna: So you get a 6-ish percent total yield from a company that also has upside if oil rallies. That's an interesting risk-reward. Lucas: Exactly. And the thing I keep coming back to — if our conversations about stock picking and portfolio strategy have helped you think about your own decisions differently, I want to mention something quickly. This show stays ad-free because of listeners who choose to support it. If you've found value in episodes like this, you can help keep it going at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. No pressure, just if it's useful to you. Luna: Yeah, and honestly, the research that goes into each episode — Lucas reads the annual reports, the investor transcripts — it's a lot of work. So if you appreciate that, it's a great way to say thanks. Lucas: Appreciate that. Anyway — back to the rotation. One risk I want to flag is that this might be a short-term trade, not a long-term shift. The market has rotated into energy before, only to snap back into tech when AI hype reignites. Luna: Like in the spring of 2025. Energy had a great six weeks, then NVIDIA's earnings crushed it and tech was off to the races again. Lucas: Exactly. So the question is: what's different this time? I think the answer lies in the earnings growth trajectory. Tech earnings growth is decelerating — the comparisons are getting harder. For the S&P 500, earnings per share growth was 12 percent in 2024, 8 percent in 2025, and this year analysts expect maybe 5 or 6 percent. Energy, on the other hand, went through a sharp earnings decline in 2025 as oil fell, but now it's stabilizing. Luna: So the relative earnings momentum is shifting. Lucas: Right. And that's what drives sector rotation over a six-to-twelve-month period. Not what happened last week, but where the earnings revisions are heading. Luna: I've been looking at the energy ETF, ticker XLE. It's up about 12 percent year-to-date, which is actually outperforming the S&P 500. But the flows into the sector are still negative. Retail investors are selling. Lucas: That's the classic contrarian signal. The sector has been rallying on institutional buying while individuals are still scarred from the 2020 oil crash and the 2024 volatility. That could mean there's more room to run as sentiment catches up. Luna: So if you're building a concentrated portfolio, how much energy exposure makes sense right now? Lucas: I wouldn't go over 15 to 20 percent, because the sector is still cyclical. But having some core positions in Exxon and Chevron — the companies that have fundamentally lowered their cost structure — makes sense as a diversifier. They provide a hedge against inflation and geopolitical risk that tech doesn't. Luna: And they pay you while you wait. Lucas: Exactly. The dividend growth at Exxon has been compounding at around 4 percent annually for the last five years. That's not flashy, but it's reliable. For a portfolio that's heavy on growth, adding a stock like that reduces volatility without sacrificing total return. Luna: What about Chevron versus Exxon? They're both in the same boat, but there are differences. Lucas: Chevron has a slightly higher dividend yield — around 4.3 percent — and they've been more aggressive on buybacks. Exxon has a bigger refining and chemicals business, which adds a different earnings driver. Over the long term, they've performed very similarly, so it's really about which management team you trust more. Luna: I know you've written before about Chevron's CEO, Mike Wirth, and his focus on capital allocation. Lucas: He's been very disciplined. Chevron's return on capital employed has averaged around 12 percent over the last three years, which is excellent for an oil company. And they've kept leverage very low — net debt to capital is under 10 percent. That gives them flexibility to acquire assets if competitors get distressed. Luna: So if oil prices dip again, they can be buyers, not sellers. Lucas: Exactly. And that's the kind of structural advantage that gets rewarded in a rotation. Look, I'm not saying sell all your tech and go all-in on oil. But if you're building a portfolio that's meant to hold for the next five to ten years, having some exposure to these re-rated energy majors is a smart bet. Luna: One last thing — do you think this rotation is being driven by anything macro, like the Fed? Lucas: Indirectly. The Fed held rates steady at the June meeting, and the market is pricing in one cut sometime in the fourth quarter. If rates stay higher for longer, that benefits value and energy stocks more than long-duration growth stocks. So there's a macro tailwind. Luna: So higher rates are actually helping energy relative to tech? Lucas: In a weird way, yes. Because the present value of future earnings is lower when rates are high, and energy stocks have more current earnings and dividends. Tech stocks, with their long duration growth, get hit harder. Luna: That's a solid framework for thinking about this week's moves. Lucas: It is. And as always, the key is to think about why you're buying something. If you're buying Exxon because you think oil will hit 100, that's a bet. If you're buying it because it's a 6 percent total yield with improving fundamentals, that's an investment. Luna: And that's the difference between trading and investing. Lucas: Exactly. So watch the earnings revisions, watch the cost structures, and don't get caught up in the weekly noise. Thanks for listening.