Exxon And Chevron No Longer 'Forever' Stocks

Summary

• Exxon and Chevron have similar long-term problems with few solutions.
• A short to intermediate term rally during the "last great secular oil bull market" is the perfect time to sell.
• There is better upside and similar dividends in other oil stocks that carry lower risk.
• If you insist on calling Exxon and Chevron "forever" stocks and following that thesis as an investor, you will eventually lose a lot of money.
• Members of my private investing community, Margin of Safety Investing, can follow this idea, as well as my other top picks with access to my model portfolio. Start your free trial today >>

I first warned about Exxon and Chevron being market laggards on December 29th, 2016 in an article titled "Oil Majors Not The Place For Rising Oil." In that article I pointed out that Exxon (XOM) and Chevron (CVX) would trail most U.S. E&Ps focused on shale. While Chevron has held-up fairly well, Exxon has been a terrible laggard. I believe Chevron will follow Exxon soon.

My thesis revolves around the reality that we are at the beginning of the end of the oil age which I first discussed back in 2015 on MarketWatch. Since then I've expanded on the idea on Seeking Alpha:

Tony Seba, EVs, Solar And $25 Oil

The New 'Golden Age' For Oil Stocks Is About To Begin

For investors concerned with total return during what is likely the last great secular oil bull market, I strongly recommend swapping Exxon and Chevron shares for more focused competitors with fewer financial, operational and legal hurdles. Here are just a few of the hurdles facing these majors.

The End of the Oil Age

For companies like Exxon and Chevron, a dramatic reduction in oil demand would obviously be detrimental. It is even more complex than that as the companies try to transition to what comes next while maximizing returns now.

The end of the oil age is a simple concept whereby gasoline and diesel powered vehicles, which account for about 70% of oil demand, give way to electric vehicles. The uncertainty to this scenario is time frame.

Estimates for peak oil demand range from Tony Seba's aggressive paradigm shifting EV adoption rates reducing oil demand by the early 2020s, to various oil producers suggesting peak oil demand will happen in about ten years, as the Royal Dutch Shell (RDS.A) CEO said, to BP (BP

Analyst’s Disclosure:I am/we are long OXY, ECA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I own a Registered Investment Advisor - https://bluemoundassetmanagement.com - however, publish separately from that entity for self-directed investors. Any information, opinions, research or thoughts presented are not specific advice as I do not have full knowledge of your circumstances. All investors ought to take special care to consider risk, as all investments carry the potential for loss. Consulting an investment advisor might be in your best interest before proceeding on any trade or investment.