Are Energy Stocks Still Somehow Cheap –

by | Sep 20, 2022 | Energy

Energy stocks are outperforming the stock market—by a mile—this year. Record profits at oil and gas firms amid soaring commodity prices have made the energy sector attractive to investors. Yet, the record earnings in energy and commodity stocks are disguising a weaker S&P 500 market, where profit growth has markedly slowed down this year—it has even flattened if energy stocks are excluded.   Analysts say that energy stocks are much cheaper than other sectors based on forward-year price-to-earnings (P/E) ratios. The earnings growth of the S&P 500 in the second quarter was in the high single digits. But excluding energy, earnings were actually down year over year.The outperforming energy sector is thus disguising the stock market’s weakness and distorting a valuation tool that many investors swear by—the forward P/E ratio.Even though the energy sector’s weight in value of the S&P 500 is just 2.7 percent, energy earnings account for a tenth of the profit growth since the oil and gas stocks are the cheapest among sectors in terms of P/E ratios, James Mackintosh, senior columnist at The Wall Street Journal, notes.Energy Sector Top Performer In S&P 500Year to date, the energy sector has been the top-performing sector in the S&P 500 index, according to market data compiled by Yardeni Research.  The energy sector in the S&P 500 had gained 41.2% year to date to September 19. In comparison, S&P 500 is down 18.2%, and all other sectors except utilities have also lost ground since January. Within …

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