Looking Beyond Tech? Analysts Say Energy Is the New Opportunity

Worried about stretched tech valuations? It might be time to take a closer look at energy stocks.

Despite their recent underperformance and pressure on oil prices, Wall Street analysts are turning increasingly bullish on the sector.

Among the 11 major sectors in the S&P 500, the energy sector holds the highest proportion of stocks rated as “Buy.” Approximately three-quarters of energy companies have received Buy ratings. On average, the market expects energy stocks to gain about 16% over the next 12 months—nearly twice the projected return of the S&P 500 as a whole.

What makes energy stocks particularly attractive to analysts is their extremely low valuation. In terms of price-to-earnings ratios, the energy sector is currently the cheapest in the S&P 500, and one of only two sectors trading below their 10-year average valuations (the other being health care). This presents a potential margin of safety and upside opportunity for investors.

In addition, President Trump’s policies represent another major reason for bullish sentiment on energy. The OBBB Act has already brought tangible benefits to oil and gas producers by eliminating subsidies for renewable energy. By 2026, the energy sector is expected to lead the S&P 500 in earnings growth.

Finally, energy stocks have traditionally served as a strong hedge against inflation. In periods of rising prices, energy shares often outperform. In 2022, while the U.S. equity market slipped into a bear market, energy stocks stood out as the best-performing sector. With Trump’s tariff policies posing the risk of renewed inflation, energy’s inflation-hedging characteristics could once again draw investor attention.