We recently published a list of Couch Potato Stock Portfolio: 7 Best Stocks To Invest In. In this article, we are going to take a look at where Exxon Mobil Corporation (NYSE:XOM) stands against other best stocks to invest in from Couch Potato portfolio.
Couch Potato investing is the concept of having a portfolio of assets that operate almost entirely on autopilot. This portfolio is intended to withstand shifting market circumstances without needing investors to make major modifications to their asset allocation or objectives. In 1991, Scott Burns came up with the idea, seeking to construct the simplest investment strategy possible: a 50/50 combination of equities and bonds using only two funds. Burns claims that this makes it possibly the most accessible portfolio available, stating that anyone who “can divide by 2” can understand it.
Barclays calculated the weighted average returns of hedge fund portfolios by investor type, which ranged from 10% to 11%. Based on performance, a conventional 60/40 portfolio model would have comfortably outperformed these gains. According to the Lazy Portfolio ETF, a 60% stock/40% bond strategy incorporating the Vanguard Total Stock Market ETF and the Total Bond Market Index Fund would have returned little less than 15% in 2024. Even after 5 years, including 2022, when both stocks and bonds fell in value, the 60/40 method has an average return of 8%. In essence, couch potato investing is a more conservative version of the 60/40 method. More importantly, its dependability shines through in difficult circumstances. For example, between 2000 and 2002, the S&P 500 sank 43.1%, whereas the couch potato portfolio declined just 6.3%.
Unsurprisingly, one possible downside of the couch potato portfolio is that it tends to underperform during notable market upswings. Portfolios with a larger allocation to equities can better capitalize on bullish markets, resulting in higher returns than the more conservative couch potato strategy. This disparity is especially prominent when the proportion of shares in a portfolio exceeds the couch potato approach’s balanced 50/50 mix of stocks and bonds. However, Burns recommends that investors evaluate this strategy comprehensively.
“Your 35-year portfolio, for instance, was worth $884,481 at the end of 2021 and declined $155,601 during 2022. That’s a loss greater than the original $100,000 value.
But so what? The portfolio is way larger than expected or needed.
The good news here is that the historical evidence shows, once again, that we can get through some pretty hard times if we keep our investments simple and cheap.”
Our Methodology
Although couch potato investing discourages individual stock trading in favor of index investment, we chose to examine the Vanguard Total Stock Market ETF and identified some of its best holdings for this list. These equities were then filtered down further based on many parameters, including the hedge fund sentiment around them, a history of stable dividend payments, and well-established businesses.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Aerial view of a major oil rig in the middle of the sea, pumping crude oil.
Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 104
Exxon Mobil Corporation (NYSE:XOM) engages in the production, trading, transportation, and sale of crude oil, natural gas, petroleum products, petrochemicals, and specialty goods. The firm is also concentrating on low-emission options such as carbon capture and storage, hydrogen production, and sustainable fuel development.
The company aims to more than triple its Permian output and produce 1.3 million bpd from its very profitable assets in Guyana. As a result, XOM expects to provide incremental growth potential of $20 billion in earnings and $30 billion in cash flow by the end of this decade.
In December, RBC Capital maintained its Sector Perform rating on Exxon Mobil Corporation (NYSE:XOM), with a price target of $115. The firm’s study recognized Exxon Mobil’s goal of increasing its activities in the Permian Basin and Guyana, as well as its LNG business. The company’s capital investment is increasingly focused on new growth areas. According to RBC Capital’s projections, Exxon Mobil’s free cash flow yield is estimated to be 5.4% in 2025, rising to 9% by 2030.
Overall, XOM ranks 5th on our list of best stocks to invest in from Couch Potato portfolio. While we acknowledge the potential of XOM as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than XOM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.