The energy sector is just one of two S&P 500 sectors that currently trades at a noticeable discount to its long-term averages. Additionally, the energy sector is usually among one of the largest sector weights in value ETFs, underscoring the point that the group is attractively valued relative to some defensive sectors, which trade at lofty multiples.
Still, making the sector’s rebound this year all the more impressive is that it comes against the backdrop of still low oil prices, little help in the way of significant production cuts and massive spending reductions by global oil majors.
“First, valuations are starting to look more attractive. Yes, oil stocks still trade at about 40 times forward earnings expectations, but that number is based on very depressed earnings, says Merrill Lynch strategist Dan Suzuki. Earnings estimates are starting to rise. In July, nearly twice as many oil companies saw Wall Street analysts revise their earnings estimates higher rather than lower, the highest ratio in at least five years—and those revisions should continue as oil stabilizes and moves higher,” according to Barron’s.
For more information on Energy ETFs, visit our Energy category.
Energy Select Sector SPDR