Investors in the stock market have had a difficult year since nothing seems to be working. One thing stands out: energy. It is the best-performing sector and, for those with patience, can still provide a good deal.
No matter whatever column is used to sort the table, the energy sector shines. Based on weighted average earnings projections from analysts surveyed by FactSet, it is listed here by forward price-to-earnings ratio.
Based on current share prices and projected free cash flow for the following 12 months, the second column displays predicted free cash flow yields.
Of all the S&P 500 sectors, the energy sector has the highest dividend yield. It also has the highest forecast FCF yield and the most anticipated FCF "headroom," which suggest that there will continue to be an abundance of free cash available for dividend increases or share repurchases.
These "four reasons" are the lowest forward P/E, the highest forecast FCF yield, the highest dividend yield, and the greatest anticipated FCF headroom.
Integrated U.S. oil corporations can buy back 20% of the market value on average over the following two to three years, according to Ben Cook of Hennessy Funds, based on the generation of free cash flow over the coming years.
Cook, who co-manages the Hennessy Energy Transition Fund and the Hennessy Midstream Fund, said U.S. exports of liquid natural gas might expand (LNG). As Russia's supply is affected, Europe and Asia compete for U.S. natural gas.
Based on projects in development and EIA forecasts, U.S. daily LNG export capacity may expand to 20 Bcf by 2025 or 2026. Current projects are "underwritten based on commitments to sell to China, Korea, and Japan," he said.
Along with Europe's uncertainties, the U.S. natural gas business has a generational potential to grow beyond the expansion in export capacity that was underway when Vladimir Putin began constructing an army on the Ukraine border in late 2021.
The iShares Global Energy ETF holds all of XLE's holdings but adds non-U.S. producers like Shell PLC Total Energies SE and BP PLC for a portfolio of 48 stocks. Top five holdings account for 47% of the portfolio.