Unexceptional US Stock Market Earnings: Hunting for Value in a High-Uncertainty Landscape

The US stock market's second-quarter 2025 earnings season has been a tale of two worlds. The S&P 500 is on pace for 10.4% year-over-year earnings growth, fueled by the Information Technology sector's 22% revenue surge and the Magnificent 7's outsized influence. Yet, this glittering performance masks a deeper story: sectors like Energy, Materials, and Utilities are trading at discounts to their historical averages, while defensive plays like Consumer Discretionary face headwinds. In a low-growth, high-uncertainty environment, these undervalued sectors—and the stocks within them—offer compelling opportunities for investors willing to look beyond the noise.

The Earnings Divide: Tech's Dominance and the Rest

The Information Technology sector's market capitalization now accounts for over 32% of the S&P 500, yet its net income share has only risen to 23%. This widening gap suggests a valuation disconnect. While tech stocks continue to dominate headlines, sectors like Energy and Materials trade at EV/EBITDA multiples of 6.63 and 8.63, respectively—well below their five-year averages. These sectors are not just cheap; they're positioned to benefit from structural trends like energy transition and industrial rebound.

Energy: The Most Undervalued Sector in the S&P 500

The Energy sector's EV/EBITDA of 6.63 for integrated oil & gas companies is a stark contrast to its 2016 peak of 35.09. This discount reflects years of regulatory headwinds and cyclical volatility, but it also creates a margin of safety for investors. Companies like Devon Energy Corp. (DVN) and Civitas Resources Inc. (CIVI) are leading the charge.

• Devon Energy (DVN): With a forward P/E of 6.8 and a 4.56% dividend yield, Devon is a cash-flow machine. Its 10% production growth in the Delaware Basin and carbon capture initiatives align with ESG trends, while its 5% dividend hike in March 2025 signals confidence in its balance sheet.
• Civitas Resources (CIVI): Trading at a jaw-dropping forward P/E of 4.8, Civitas has boosted 2025 production forecasts by 15% after acquiring Permian Basin assets. Its methane capture technology and $1.3 billion in 2024 free cash flow make it a high-conviction play.

Materials: The Overlooked Engine of Industrial Growth

The Materials sector's EV/EBITDA of 8.63 is another anomaly. While it's cyclical, its exposure to global industrial demand and infrastructure spending makes it a unique value proposition. Barrick Gold Corp. (GOLD), for instance, trades at a forward P/E of 9.8 despite 50% net income growth. Its expansion at Pueblo Viejo and AI-driven ore processing in Nevada position it to capitalize on rising gold and copper prices.

Utilities: Stability in a Storm

Utilities, with an average EV/EBITDA of 12, have historically traded between 10x and 23x forward earnings. While not as cheap as Energy or Materials, their defensive appeal is undeniable. The sector's 2022 outperformance (2% return vs. S&P 500's -18%) and the Inflation Reduction Act's clean energy incentives make it a long-term play. However, its 18x forward P/E in 2023 suggests it's already priced in some of these benefits.

The Case for Value in a Low-Growth World

The S&P 500's growth stocks trade at a 57% premium to value peers. This gap is unsustainable in a low-growth environment where earnings expectations are harder to meet. Energy and Materials stocks, with their low valuations and earnings visibility, offer a counterbalance. For example, Devon's 6.8 forward P/E implies a 43% discount to the S&P 500's 12x average.

Risks and Mitigations

Tariffs, geopolitical tensions, and interest rate uncertainty linger. However, these risks are already priced into Energy and Materials stocks. For instance, Civitas's 5.55% dividend yield provides income even if oil prices dip. Similarly, Barrick's low debt-to-equity ratio (0.15) insulates it from liquidity shocks.

Conclusion: A Strategic Shift Toward Value

The US stock market's earnings story is unexceptional, but it's not without opportunity. Energy and Materials sectors, along with their undervalued constituents, offer a path to outperformance in a world where growth is elusive. For investors, the key is to balance income-oriented plays like Devon and Civitas with growth-focused names like Barrick. In a high-uncertainty environment, fundamentals and valuation metrics matter more than ever.

Investment Takeaway: Allocate 10–15% of a diversified portfolio to Energy and Materials stocks with strong balance sheets and earnings visibility. Prioritize companies like Devon Energy and Civitas Resources for income and Barrick Gold for growth. Monitor macro risks but remain focused on the long-term value these sectors represent.