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Welcome to Episode #497 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, is joined by guests to discuss the hottest investing topics in stocks, bonds, and ETFs and how it impacts your life.
This week, Tracey went solo to look at what is happening in the energy industry now that the Iran War has reached the six-month mark.
Early in the conflict, Tracey urged investors to buy the North American producers as they did not have exposure to war impacts on their infrastructure and could still cash in on higher oil prices.
But six months into it, we now have an idea as to what has happened to infrastructure located in the Middle East and which companies have been able to maneuver around those risks.
“Big Oil” is a term to describe the energy companies that are “integrated.” That means they control all aspects of the energy ecosystem.
With oil, it means they are exploring and drilling for it. Then they are transporting it and refining it into products like diesel, gasoline, jet fuel, and lubricants. Many Big Oil companies will then distribute and sell those refined products in service stations which they also own.
“Big Oil” is best represented by the large cap international energy companies like ExxonMobil, Chevron, and TotalEnergies.
It has paid to be big during the Iran War. The largest integrated energy companies in the world generated massive free cash flows in the second quarter of 2026 as refining margins remained elevated.
ExxonMobil saw free cash flow of $17.2 billion in the second quarter and Chevron saw $19.6 billion for a combined $36.8 billion. TotalEnergies added on another $9.8 billion as well.
Refining margins have risen even higher in the third quarter of 2026 even on oil prices remain under $100 per barrel due to drone strikes on Russian refineries this summer which has taken refined product off the global market.
Russia was a big exporter of diesel, supplying 11% of the global market last year. It has now instituted an export ban on diesel due to the damage to many of its refineries. It needs the diesel at home now.
Big Oil has many ways to make money. That’s the beauty of owning all aspects of the ecosystem.
1. ExxonMobil Holdings Corp. (XOM)
ExxonMobil is an American Big Oil company which operates 21 refineries around the world. Its refineries average about 5 million barrels per day.
ExxonMobil had record second quarter diesel production. That market remains tight in the third quarter as well.
ExxonMobil generated free cash flow of $17.2 billion in the second quarter of 2026 thanks to its downstream business, including higher refining margins.
Shares of Exxon Mobil are up 37% year-to-date but it’s still attractively priced with a forward price-to-earnings (P/E) ratio of just 14.1.
Why is the P/E so low? Earnings are expected to rise 68% this year on strong refining margins.
Another characteristic of Big Oil companies is that they are shareholder friendly. ExxonMobil returned $9.4 billion to shareholders in the second quarter through share buybacks and dividends. ExxonMobil is paying a dividend of $4.12 annually, which is yielding 2.5%.
Should a Big Oil company with 21 refineries like ExxonMobil be on your short list?
2. TotalEnergies SE (TTE)
TotalEnergies is a French Big Oil company which operates 14 refineries globally, including 6 refineries in Europe and one in Saudia Arabia at the SATORP facility.
TotalEnergies has seen impacts from the Middle East conflict. The SATORP refinery was shut after suffering damage but the company believes it will be back at nominal capacity by the end of the third quarter of 2026.
Additionally, TotalEnergies has seen an impact on production. 5% to 10% of the company’s total production has been impacted.
However, thanks to strong refining margins, TotalEnergies still generated operating cash flow of $9.8 billion in the second quarter. Downstream cash flow, which is the refining segment, rose 35% year over year to $2.9 billion.
Shares of TotalEnergies are up 37% year-to-date. It is dirt cheap, with a forward P/E of just 8. A P/E ratio under 10 means a company has deep value. Earnings are expected to jump 54.6% in 2026.
TotalEnergies is also shareholder friendly. It raised the second quarter dividend by 5.9%. It also has an active share buyback program.
Should a French energy company like TotalEnergies be on your short list?
3. Chevron Corp. (CVX)
Chevron is an American Big Oil company which operates 5 wholly owned refineries in the United States and has 3 joint venture refineries in South Korea, Thailand, and Singapore.
In the second quarter of 2026, Chevron had record U.S. production and worldwide production was up 20% due to the Hess acquisition and strong results in the Permian Basin and Gulf of America.
Free cash flow was $19.7 billion in the quarter. Chevron is shareholder friendly as well. It pays a dividend of $7.12 annually, which is yielding 3.5%.
Shares of Chevron are up 34.9% year-to-date. Earnings are expected to rise 117% this year on higher refining margins.
Chevron is still cheap. It’s forward P/E is 12.7. A P/E under 15 usually indicates a company is a value.
Should Chevron be on your energy short list?
Tune into this week’s podcast to find out.
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This article originally published on Zacks Investment Research (zacks.com).
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