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Bet on Big Oil Stocks as a Defensive Hedge Against Market Volatility?
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With crude oil prices rising to over $70 a barrel again, the energy sector has been the best-performing subsector of the S&P 500 this year. Led by big oil giants Chevron CVXandExxon Mobil (XOM - Free Report) , the energy sector has risen +8% year to date compared to the benchmark S&P 500’s broader decline of -6%.
Leading to the uptick in crude prices is that seasonal peaks in travel and industrial production are approaching with the warmer spring and summer months ahead. Although increased tariffs will lead to higher costs which may affect the willingness of consumers to travel, the smidges of an ongoing trade war and rising geopolitical tensions could bring a conundrum in crude production and the plausibility of a higher commodity price.
This includes sanctions that could take Russian oil off the market and lead to a further surge in crude prices. With these varying factors at hand, investors may be wondering if now is still a good time to bet on oil conglomerates like Chevron and Exxon to continue outperforming the broader market.
Image Source: Trading Economics
Performance & Valuation
Defying recent market volatility, Chevron and Exxon stock are sitting on YTD gains of +16% and +11% respectively, with the tech-centric Nasdaq taking the brunt of the hit and down 11%. More impressive, is that CVX and XOM have topped the impressive returns of the broader indexes in the last five years.
Image Source: Zacks Investment Research
Despite their impressive YTD rallies, CVX and XOM both trade at reasonable 16X forward earnings multiples which is beneath the benchmark’s 21.2X although this is above their Zacks Oil and Gas-Intergrated-International Industry average of 8.4X.
Still, Chevron and Exxon are historical leaders in the space and are currently trading near their respective decade-long-medians in regards to price-to-earnings valuation.
Image Source: Zacks Investment Research
Desirable Dividends
Keeping shareholders engaged in Chevron and Exxon stock is their generous dividends. Topping the S&P 500's average of 1.32% and being closer to their industry average of 4.32%, CVX currently has a 4.12% annual dividend yield with XOM at 3.36%.
Image Source: Zacks Investment Research
What the Zacks Rank Suggest
With the Zacks Rank largely predicated on the trend of earnings estimate revisions, Chevron and Exxon stock both land a Zacks Rank #3 (Hold) at the moment. Notably, Chevron’s annual earnings are currently expected to rise 3% in fiscal 2025 and are projected to spike another 19% in FY26 to $12.30 per share.
However, it’s noteworthy that FY25 and FY26 EPS estimates have declined over 7% in the last 60 days, which suggests there could be better buying opportunities ahead despite Chevron's appealing EPS growth.
Image Source: Zacks Investment Research
Similarly, FY25 EPS estimates have dipped 5% in the last two months for Exxon with FY26 EPS estimates down over 11%. Exxon’s annual EPS is now expected to dip 7% this year but is projected to rebound and soar 20% in FY26 to $8.70.
Image Source: Zacks Investment Research
Conclusion & Final Thoughts
Holding Chevron and Exxon stock may still be rewarding to investors at their current levels but more upside from here will likely depend on the trend of earnings estimate revisions in the coming weeks. To that point, if EPS estimates for Chevron and Exxon continue to decline it may be time to take profits as this will likely lead to a sell rating at some point.
That said, an uptick in EPS revisions could lead to a buy rating and is plausible if crude prices stay over $70 a barrel. Most importantly, this would keep CVX and XOM in the conversation as it relates to potential hedges against recent market volatility.
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Bet on Big Oil Stocks as a Defensive Hedge Against Market Volatility?
With crude oil prices rising to over $70 a barrel again, the energy sector has been the best-performing subsector of the S&P 500 this year. Led by big oil giants Chevron CVX and Exxon Mobil (XOM - Free Report) , the energy sector has risen +8% year to date compared to the benchmark S&P 500’s broader decline of -6%.
Leading to the uptick in crude prices is that seasonal peaks in travel and industrial production are approaching with the warmer spring and summer months ahead. Although increased tariffs will lead to higher costs which may affect the willingness of consumers to travel, the smidges of an ongoing trade war and rising geopolitical tensions could bring a conundrum in crude production and the plausibility of a higher commodity price.
This includes sanctions that could take Russian oil off the market and lead to a further surge in crude prices. With these varying factors at hand, investors may be wondering if now is still a good time to bet on oil conglomerates like Chevron and Exxon to continue outperforming the broader market.
Image Source: Trading Economics
Performance & Valuation
Defying recent market volatility, Chevron and Exxon stock are sitting on YTD gains of +16% and +11% respectively, with the tech-centric Nasdaq taking the brunt of the hit and down 11%. More impressive, is that CVX and XOM have topped the impressive returns of the broader indexes in the last five years.
Image Source: Zacks Investment Research
Despite their impressive YTD rallies, CVX and XOM both trade at reasonable 16X forward earnings multiples which is beneath the benchmark’s 21.2X although this is above their Zacks Oil and Gas-Intergrated-International Industry average of 8.4X.
Still, Chevron and Exxon are historical leaders in the space and are currently trading near their respective decade-long-medians in regards to price-to-earnings valuation.
Image Source: Zacks Investment Research
Desirable Dividends
Keeping shareholders engaged in Chevron and Exxon stock is their generous dividends. Topping the S&P 500's average of 1.32% and being closer to their industry average of 4.32%, CVX currently has a 4.12% annual dividend yield with XOM at 3.36%.
Image Source: Zacks Investment Research
What the Zacks Rank Suggest
With the Zacks Rank largely predicated on the trend of earnings estimate revisions, Chevron and Exxon stock both land a Zacks Rank #3 (Hold) at the moment. Notably, Chevron’s annual earnings are currently expected to rise 3% in fiscal 2025 and are projected to spike another 19% in FY26 to $12.30 per share.
However, it’s noteworthy that FY25 and FY26 EPS estimates have declined over 7% in the last 60 days, which suggests there could be better buying opportunities ahead despite Chevron's appealing EPS growth.
Image Source: Zacks Investment Research
Similarly, FY25 EPS estimates have dipped 5% in the last two months for Exxon with FY26 EPS estimates down over 11%. Exxon’s annual EPS is now expected to dip 7% this year but is projected to rebound and soar 20% in FY26 to $8.70.
Image Source: Zacks Investment Research
Conclusion & Final Thoughts
Holding Chevron and Exxon stock may still be rewarding to investors at their current levels but more upside from here will likely depend on the trend of earnings estimate revisions in the coming weeks. To that point, if EPS estimates for Chevron and Exxon continue to decline it may be time to take profits as this will likely lead to a sell rating at some point.
That said, an uptick in EPS revisions could lead to a buy rating and is plausible if crude prices stay over $70 a barrel. Most importantly, this would keep CVX and XOM in the conversation as it relates to potential hedges against recent market volatility.